UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 27, 2020

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission File Number 333-48123

 

The Hackett Group, Inc.

(Exact name of registrant as specified in its charter)

 

 

FLORIDA

 

65-0750100

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

1001 Brickell Bay Drive, Suite 3000

Miami, Florida

 

33131

(Address of principal executive offices)

 

(Zip Code)

 

(305) 375-8005

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirement for the past 90 days.    YES      NO  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    YES      NO  

Indicate by check mark whether registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

 

Accelerated Filer

 

 

 

 

 

 

 

Non-Accelerated Filer

 

 

Smaller Reporting Company

 

 

 

 

 

 

 

 

 

 

Emerging Growth Company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES    NO  

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $.001 per share

HCKT

NASDAQ Stock Market

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of May 1, 2020, there were 29,976,154 shares of common stock outstanding.

 

 

 

 


 

The Hackett Group, Inc.

TABLE OF CONTENTS

 

PART I - FINANCIAL INFORMATION

Page

 

 

 

Item 1.

Financial Statements

 

 

 

 

 

Consolidated Balance Sheets as of March 27, 2020 and December 27, 2019 (unaudited)

3

 

 

 

 

Consolidated Statements of Operations for the Three Months Ended March 27, 2020 and March 29, 2019 (unaudited)

4

 

 

 

 

Consolidated Statements of Comprehensive Income for the Three Months Ended March 27, 2020 and March 29, 2019 (unaudited)

5

 

 

 

 

Consolidated Statements of Cash Flows for the Three Months Ended March 27, 2020 and March 29, 2019 (unaudited)

6

 

 

 

 

Consolidated Statements of Equity for the Three Months Ended March 27, 2020 and March 29, 2019 (unaudited)

7

 

 

 

 

Notes to Consolidated Financial Statements (unaudited)

8

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

16

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

20

 

 

 

Item 4.

Controls and Procedures

20

 

 

PART II - OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

21

 

 

 

Item 1A.

Risk Factors

21

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

21

 

 

 

Item 6.

Exhibits

22

 

 

SIGNATURES

23

 

 

2


 

PART I — FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

The Hackett Group, Inc.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(unaudited)

 

 

 

March 27,

 

 

December 27,

 

 

 

2020

 

 

2019

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash

 

$

23,280

 

 

$

25,954

 

Accounts receivable and unbilled revenue, net of allowance of $374 and $743 at        March 27, 2020 and December 27, 2019, respectively

 

 

53,397

 

 

 

49,778

 

Prepaid expenses and other current assets

 

 

3,316

 

 

 

2,895

 

Total current assets

 

 

79,993

 

 

 

78,627

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

19,774

 

 

 

19,916

 

Other assets

 

 

2,238

 

 

 

2,652

 

Goodwill

 

 

83,786

 

 

 

84,578

 

Operating lease right-of-use assets

 

 

9,318

 

 

 

7,962

 

Total assets

 

$

195,109

 

 

$

193,735

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

8,347

 

 

$

8,494

 

Accrued expenses and other liabilities

 

 

27,848

 

 

 

32,482

 

Operating lease liabilities

 

 

2,686

 

 

 

2,707

 

Total current liabilities

 

 

38,881

 

 

 

43,683

 

Non-current deferred tax liability, net

 

 

8,797

 

 

 

7,183

 

Operating lease liabilities

 

 

6,632

 

 

 

5,255

 

Total liabilities

 

 

54,310

 

 

 

56,121

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value, 1,250,000 shares authorized; none

   issued and outstanding

 

 

 

 

 

 

Common stock, $0.001 par value, 125,000,000 shares authorized; 57,472,441 and

   57,180,616 shares issued at March 27, 2020 and December 27, 2019, respectively

 

 

58

 

 

 

58

 

Additional paid-in capital

 

 

304,214

 

 

 

303,707

 

Treasury stock, at cost, 27,498,432 and 27,425,476 shares March 27, 2020

   and December 27, 2019, respectively

 

 

(142,893

)

 

 

(141,887

)

Accumulated deficit

 

 

(8,200

)

 

 

(13,714

)

Accumulated other comprehensive loss

 

 

(12,380

)

 

 

(10,550

)

Total shareholders' equity

 

 

140,799

 

 

 

137,614

 

Total liabilities and shareholders' equity

 

$

195,109

 

 

$

193,735

 

 

The accompanying notes are an integral part of the consolidated financial statements.

3


 

The Hackett Group, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

 

 

 

Quarter Ended

 

 

 

March 27,

 

 

March 29,

 

 

 

2020

 

 

2019

 

Revenue:

 

 

 

 

 

 

 

 

Revenue before reimbursements

 

$

65,186

 

 

$

62,370

 

Reimbursements

 

 

4,347

 

 

 

4,785

 

Total revenue

 

 

69,533

 

 

 

67,155

 

Costs and expenses:

 

 

 

 

 

 

 

 

Cost of service:

 

 

 

 

 

 

 

 

Personnel costs before reimbursable expenses

 

 

41,113

 

 

 

38,805

 

Stock compensation expense

 

 

1,594

 

 

 

999

 

Reimbursable expenses

 

 

4,347

 

 

 

4,785

 

Total cost of service

 

 

47,054

 

 

 

44,589

 

Selling, general and administrative costs

 

 

14,135

 

 

 

14,341

 

Stock compensation expense

 

 

636

 

 

 

705

 

Acquisition-related contingent consideration liability

 

 

 

 

 

(1,070

)

Total costs and operating expenses

 

 

61,825

 

 

 

58,565

 

Income from operations

 

 

7,708

 

 

 

8,590

 

 

 

 

 

 

 

 

 

 

Other expense:

 

 

 

 

 

 

 

 

Interest expense

 

 

(37

)

 

 

(101

)

Income from operations before income taxes

 

 

7,671

 

 

 

8,489

 

Income tax expense

 

 

2,136

 

 

 

1,440

 

Income from continuing operations

 

 

5,535

 

 

 

7,049

 

Gain (loss) from discontinued operations

 

 

(8

)

 

 

45

 

Net income

 

$

5,527

 

 

$

7,094

 

 

 

 

 

 

 

 

 

 

Basic net income per common share:

 

 

 

 

 

 

 

 

Income per common share from continuing operations

 

$

0.19

 

 

$

0.24

 

Gain (loss) per common share from discontinued operations

 

 

(0.00

)

 

 

0.00

 

Net income per common share

 

$

0.19

 

 

$

0.24

 

 

 

 

 

 

 

 

 

 

Diluted net income per common share:

 

 

 

 

 

 

 

 

Income per common share from continuing operations

 

$

0.17

 

 

$

0.22

 

Gain (loss) per common share from discontinued operations

 

 

(0.00

)

 

 

0.00

 

Net income per common share

 

$

0.17

 

 

$

0.22

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

29,889

 

 

 

29,683

 

Diluted

 

 

32,264

 

 

 

32,294

 

 

The accompanying notes are an integral part of the consolidated financial statements.

4


 

The Hackett Group, Inc.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)

 

 

 

Quarter Ended

 

 

 

March 27,

 

 

March 29,

 

 

 

2020

 

 

2019

 

Net income

 

$

5,527

 

 

$

7,094

 

Foreign currency translation adjustment

 

 

(1,830

)

 

 

657

 

Total comprehensive income

 

$

3,697

 

 

$

7,751

 

 

The accompanying notes are an integral part of the consolidated financial statements.

5


 

The Hackett Group, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

 

 

Quarter Ended

 

 

 

March 27,

 

 

March 29,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

5,527

 

 

$

7,094

 

Less gain (loss) from discontinued operations

 

 

(8

)

 

 

45

 

Net income from continuing operations

 

 

5,535

 

 

 

7,049

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation expense

 

 

800

 

 

 

606

 

Amortization expense

 

 

238

 

 

 

299

 

Amortization of debt issuance costs

 

 

23

 

 

 

23

 

Non-cash stock compensation expense

 

 

2,230

 

 

 

1,704

 

Provision for doubtful accounts

 

 

21

 

 

 

507

 

Gain on foreign currency translation

 

 

(100

)

 

 

(64

)

Release of valuation allowance

 

 

1,622

 

 

 

1,714

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Increase in accounts receivable and unbilled revenue

 

 

(3,357

)

 

 

(1,592

)

(Increase) decrease in prepaid expenses and other assets

 

 

(185

)

 

 

301

 

Decrease in accounts payable

 

 

(147

)

 

 

(1,054

)

Decrease in accrued expenses and other liabilities

 

 

(236

)

 

 

(2,176

)

Increase (decrease) in income tax payable

 

 

85

 

 

 

(603

)

Net cash provided by operating activities

 

 

6,521

 

 

 

6,759

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(533

)

 

 

(1,505

)

Net cash used in investing activities

 

 

(533

)

 

 

(1,505

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from borrowings

 

 

 

 

 

1,000

 

Dividends paid

 

 

(5,790

)

 

 

(5,407

)

Repurchase of common stock

 

 

(2,969

)

 

 

(3,990

)

Net cash used in financing activities

 

 

(8,759

)

 

 

(8,397

)

Effect of exchange rate on cash

 

 

97

 

 

 

(6

)

Net decrease in cash and cash equivalents

 

 

(2,674

)

 

 

(3,149

)

Cash at beginning of period

 

 

25,954

 

 

 

13,808

 

Cash at end of period

 

$

23,280

 

 

$

10,659

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for income taxes

 

$

350

 

 

$

315

 

Cash paid for interest

 

$

14

 

 

$

87

 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

 

6


 

The Hackett Group, Inc.

CONSOLIDATED STATEMENTS OF EQUITY

(in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

Total

 

 

 

Common Stock

 

 

Paid in

 

 

Treasury Stock

 

 

Accumulated

 

 

Comprehensive

 

 

Shareholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Shares

 

 

Amount

 

 

Deficit

 

 

Loss

 

 

Equity

 

Balance at December 27, 2019

 

 

57,181

 

 

$

58

 

 

$

303,707

 

 

 

(27,425

)

 

$

(141,887

)

 

$

(13,714

)

 

$

(10,550

)

 

$

137,614

 

Issuance of common stock

 

 

291

 

 

 

 

 

 

(1,962

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,962

)

Treasury stock purchased

 

 

 

 

 

 

 

 

 

 

 

(73

)

 

 

(1,006

)

 

 

 

 

 

 

 

 

(1,006

)

Amortization of restricted stock

   units and common stock subject to

   vesting requirements

 

 

 

 

 

 

 

 

2,469

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,469

 

Dividends declared

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(13

)

 

 

 

 

 

(13

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,527

 

 

 

 

 

 

5,527

 

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,830

)

 

 

(1,830

)

Balance at March 27, 2020

 

 

57,472

 

 

$

58

 

 

$

304,214

 

 

 

(27,498

)

 

$

(142,893

)

 

$

(8,200

)

 

$

(12,380

)

 

$

140,799

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

Total

 

 

 

Common Stock

 

 

Paid in

 

 

Treasury Stock

 

 

Accumulated

 

 

Comprehensive

 

 

Shareholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Shares

 

 

Amount

 

 

Deficit

 

 

Loss

 

 

Equity

 

Balance at December 28, 2018

 

 

56,615

 

 

$

57

 

 

$

296,955

 

 

 

(27,086

)

 

$

(136,604

)

 

$

(25,424

)

 

$

(11,394

)

 

$

123,590

 

Issuance of common stock

 

 

394

 

 

 

1

 

 

 

(2,373

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,372

)

Treasury stock purchased

 

 

 

 

 

 

 

 

 

 

 

(102

)

 

 

(1,616

)

 

 

 

 

 

 

 

 

(1,616

)

Amortization of restricted stock

   units and common stock subject to

   vesting requirements

 

 

 

 

 

 

 

 

2,394

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,394

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7,094

 

 

 

 

 

 

7,094

 

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

657

 

 

 

657

 

Balance at March 29, 2019

 

 

57,009

 

 

$

58

 

 

$

296,976

 

 

 

(27,188

)

 

$

(138,220

)

 

$

(18,330

)

 

$

(10,737

)

 

$

129,747

 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

 

7


 

The Hackett Group, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. Basis of Presentation and General Information

Basis of Presentation

The accompanying consolidated financial statements of The Hackett Group, Inc. (“Hackett” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and include the Company’s accounts and those of its wholly-owned subsidiaries which the Company is required to consolidate. All intercompany transactions and balances have been eliminated in consolidation.

In the opinion of management, the accompanying consolidated financial statements reflect all normal and recurring adjustments which are necessary for a fair presentation of the Company’s financial position, results of operations, and cash flows as of the dates and for the periods presented. The consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, these statements do not include all the disclosures normally required by U.S. GAAP for annual financial statements and should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 27, 2019, included in the Annual Report on Form 10-K filed by the Company with the SEC on March 5, 2020. The consolidated results of operations for the quarter ended March 27, 2020, are not necessarily indicative of the results to be expected for any future period or for the full fiscal year.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Revenue Recognition

The Company’s revenue is substantially generated from providing professional services to its clients. The Company also generates revenue from software licenses, software support, maintenance and subscriptions to its executive and best practices advisory programs. A single contract could include one or multiple performance obligations. For those contracts that have multiple performance obligations, the Company allocates the total transaction price to each performance obligation based on its relative standalone selling price.  The Company determines the standalone selling price based on the respective selling price of the individual elements when they are sold separately.  

Revenue is recognized when control of the goods and services provided are transferred to the Company’s customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods and services using the following steps: 1) identify the contract, 2) identify the performance obligations, 3) determine the transaction price, 4) allocate the transaction price to the performance obligations in the contract, and 5) recognize revenue as or when we satisfy the performance obligations.  

The Company typically satisfies its performance obligations for professional services over time as the related services are provided. The performance obligations related to software support, maintenance and subscriptions to our executive and best practice advisory programs are typically satisfied evenly over the course of the service period. Other performance obligations, such as software licenses, are satisfied at a point in time.

The Company generates its revenue under four types of billing arrangements: fixed-fee (including software license revenue); time-and-materials; executive and best practice advisory services; and software sales, maintenance and support.

In fixed-fee billing arrangements, which would also include contracts with capped fees, the Company agrees to a pre-established fee or fee cap in exchange for a predetermined set of professional services. The Company sets the fees based on its estimates of the costs and timing for completing the engagements. The Company generally recognizes revenue under fixed-fee or capped fee arrangements using a proportionate performance approach, which is based on work completed to-date as compared to estimates of the total services to be provided under the engagement. Estimates of total engagement revenue and cost of services are monitored regularly during the term of the engagement. If the Company’s estimates indicate a potential loss, such loss is recognized in the period in which the loss first becomes probable and reasonably estimable. The customer is invoiced based on the contractual agreement between the parties, typically bi-weekly, monthly or milestone driven, with net thirty-day terms.

Time-and-material billing arrangements require the client to pay based on the number of hours worked by the Company’s consultants at agreed upon hourly rates. The Company recognizes revenue under time-and-material arrangements as the related services or goods are provided, using the right to invoice practical expedient which allows us to recognize revenue in the amount based on the number of hours worked and the agreed upon hourly rates.  The customer is invoiced based on the contractual agreement between the parties, typically bi-weekly, monthly or milestone driven, with net thirty-day terms.

8


The Hackett Group, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

1. Basis of Presentation and General Information (continued)

 

Advisory services contracts are typically in the form of a subscription agreement which allows the customer access to the Company’s executive and best practice advisory programs.  There is typically a single performance obligation and the transaction price is the contractual amount of the subscription agreement.  Revenue from advisory service contracts is recognized ratably over the life of the agreements.  Customers are typically invoiced at the inception of the contract, with net thirty-day terms.

The resale of software and maintenance contracts are in the form of SAP America software license or maintenance agreements provided by SAP America.  SAP is the principal and the Company is the agent in these transactions as the Company does not obtain title to the software and the maintenance is sold simultaneously.  The transaction price is the Company’s agreed-upon percentage of the software license or maintenance amount in the contract with the vendor.  Revenue for the resale of software licenses is recognized upon contract execution and customer’s receipt of the software. Revenue from maintenance contracts is recognized ratably over the life of the agreements.  The customer is typically invoiced at contract inception, with net thirty-day terms.

Expense reimbursements that are billable to clients are included in total revenue and are substantially all billed as time-and-material billing arrangements.  Therefore, the Company recognizes all reimbursable expenses as revenue as the related services are provided, using the right to invoice practical expedient. Reimbursable expenses are recognized as expenses in the period in which the expense is incurred.  Any expense reimbursements that are billable to clients under fixed-fee billing arrangements are recognized in line with the proportionate performance approach.  

The payment terms and conditions in our customer contracts vary. The agreements entered into in connection with a project, whether time-and-materials, fixed-fee or capped-fee based, typically allow clients to terminate early due to breach or for convenience with a 30 days’ notice. In the event of termination, the client is contractually required to pay for all time, materials and expenses incurred by the Company through the effective date of the termination. In addition, from time to time the Company enters into agreements with its clients that limit its right to enter into business relationships with specific competitors of that client for a specific time period. These provisions typically prohibit the Company from performing a defined range of services which it might otherwise be willing to perform for potential clients. These provisions are generally limited to six to twelve months and usually apply only to specific employees or the specific project team.

Sales tax collected from customers and remitted to the applicable taxing authorities is accounted for on a net basis, with no impact to revenue.

Differences between the timing of billings and the recognition of revenue are recognized as either unbilled services or deferred revenue in the accompanying consolidated balance sheets. Revenue recognized for services performed but not yet billed to clients are recorded as unbilled services. Revenue recognized, but for which are not yet entitled to bill because certain events, such as the completion of the measurement period, are recorded as contract assets and included within unbilled services. Client prepayments are classified as deferred revenue and recognized over future periods as earned in accordance with the applicable engagement agreement. See Note 3 for the accounts receivable and unbilled revenue balances and see Note 4 for the deferred revenue balances. During the quarter ended March 27, 2020, the Company recognized $4.4 million of revenue as a result of changes in deferred revenue liability balance, as compared to $4.0 million for the quarter ended March 29, 2019. 

The following table reflects the Company’s disaggregation of total revenue including reimbursable expenses for the quarters ended March 27, 2020 and March 29, 2019:

 

 

 

Quarter Ended

 

 

 

March 27,

 

 

March 29,

 

 

 

2020

 

 

2019

 

Consulting

 

$

63,311

 

 

$

61,831

 

Software License Sales

 

 

1,875

 

 

 

539

 

Revenue before reimbursements from continuing operations

 

$

65,186

 

 

$

62,370

 

 

Capitalized Sales Commissions

Sales commissions earned by the Company’s sales force are considered incremental and recoverable costs of obtaining a contract with a customer. These costs are deferred and then amortized as project revenue is recognized.  We determined the period of amortization by taking into consideration the customer contract period, which are generally less than 12 months. Commission expense is included in Selling, General and Administrative Costs in the accompanying consolidated statements of operations. As of December 27, 2019, and December 28, 2018, the Company had $1.6 million and $1.2 million, respectively, of deferred commissions, of which $0.4 million and $0.2 million was amortized during the first three months of the year 2020 and 2019, respectively.  No impairment loss was recognized relating to the capitalization of deferred commission.

 

9


The Hackett Group, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

1. Basis of Presentation and General Information (continued)

Practical Expedients

The Company does not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less.  The Company does not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between payment by the customer and the transfer of the promised goods or services to the customer will be less than one year.

Fair Value

The Company’s financial instruments consist of cash and cash equivalents, accounts receivable and unbilled revenue, accounts payable, accrued expenses and other liabilities and debt. As of March 27, 2020 and December 27, 2019, the carrying amount of each financial instrument approximated the instrument’s respective fair value due to the short-term nature and maturity of these instruments.

The Company uses significant other observable market data or assumptions (Level 2 inputs as defined in accounting guidance) that it believes market participants would use in pricing debt. The fair value of the debt approximated the carrying amount, using Level 2 inputs, due to the short-term variable interest rates based on market rates.

Business Combinations

The Company applies the provisions of ASC 805, Business Combinations, in the accounting for its acquisitions, which requires recognition of the assets acquired and the liabilities assumed at their acquisition date fair values, separately from goodwill. Goodwill as of the acquisition date is measured as the excess of consideration transferred and the net of the acquisition date fair values of the tangible and identifiable intangible assets acquired and liabilities assumed. While the Company uses its best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date as well as contingent consideration, where applicable, its estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, that may be up to 12 months from the acquisition date, the Company records adjustments to the assets acquired and liabilities assumed with a corresponding adjustment to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, the impact of any subsequent adjustments is included in the consolidated statements of operations.

 

COVID-19 Pandemic Impact on Our Business

 

The level of revenue the Company can achieve is based on the Company’s ability to deliver market leading services and solutions and to deploy skilled teams of professionals quickly. The Company’s results of operations are affected by economic conditions, including macroeconomic conditions and levels of business confidence. In spite of some disruption in March 2020, the COVID-19 pandemic did not have a significant impact on the Company’s consolidated results of operations during the first quarter of 2020, however, it expects net revenue and dilutive earnings per share to be negatively impacted in the second quarter of 2020, and for negative impacts to continue until economic conditions improve. A substantial or prolonged economic downturn as a result of the COVID-19 pandemic or otherwise, weak or uncertain economic conditions or similar factors could adversely affect our clients’ financial condition which may further reduce the Company’s clients’ demand for our services.  

 

The Company is actively managing its business to respond to the impact of the COVID-19. The Company has reduced employee travel to only essential business needs and the employees have been working from home. The Company is generally following the requirements and protocols published by the U.S. Centers for Disease Control and the World Health Organization, and state and local governments. The Company cannot predict when or how it will begin to lift the actions put in place.

 

As a response to the ongoing COVID-19 pandemic, the Company has implemented plans to manage its costs and preserve cash. The Company has significantly limited the addition of new employees and third party contracted services, eliminated all travel except where necessary to meet customer needs, and acted to limit discretionary spending. To the extent the business disruption continues for an extended period, additional cost management actions will be considered.  Any future asset impairment charges, increases in allowance for doubtful accounts, or restructuring charges could be more likely and will be dependent on the severity and duration of the pandemic.

 

In light of the evolving health, social, economic and business environment, governmental regulations or mandates, and business disruptions that could occur, the potential impact that COVID-19 could have on the Company’s financial condition and operating results remains highly uncertain.

 

10


The Hackett Group, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

1. Basis of Presentation and General Information (continued)

Recently Issued Accounting Standards

In January 2017, the FASB issued ASU 2017-04, which eliminates Step 2 from the goodwill impairment test. For public companies, this update was effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted for interim and annual goodwill impairment test with a measurement date after January 1, 2017. The adoption did not have a material impact on the Company’s consolidated financial statements.

In January 2020, the Company adopted ASU 2016-13 which changes how entities measure credit losses for most financial assets, including trade accounts receivable. The adoption did not have a material impact on the financial statements.

 

Reclassifications

Certain prior period amounts in the consolidated financial statements, and notes thereto, have been reclassified to conform to current period presentation.

2. Net Income per Common Share

Basic net income per common share is computed by dividing net income by the weighted average number of common shares outstanding during the period. With regard to common stock subject to vesting requirements and restricted stock units issued to the Company’s employees and non-employee members of its Board of Directors, the calculation includes only the vested portion of such stock and units.

Diluted net income per common share is computed by dividing net income by the weighted average number of common shares outstanding, increased by the assumed conversion of other potentially dilutive securities during the period.

The following table reconciles basic and dilutive weighted average common shares:

 

 

 

Quarter Ended

 

 

 

March 27,

 

 

March 29,

 

 

 

2020

 

 

2019

 

Basic weighted average common shares outstanding

 

 

29,889,142

 

 

 

29,682,888

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

Unvested restricted stock units and common stock subject

   to vesting requirements issued to employees and

   non-employees

 

 

97,577

 

 

 

239,047

 

Common stock issuable upon the exercise of stock options

   and SARs

 

 

2,277,288

 

 

 

2,372,515

 

Dilutive weighted average common shares outstanding

 

 

32,264,007

 

 

 

32,294,450

 

 

Approximately 9 thousand shares and 4 thousand shares of common stock equivalents were excluded from the computations of diluted net income per common share for the quarters ended March 27, 2020 and March 29, 2019, respectively, as inclusion would have had an anti-dilutive effect on diluted net income per common share.   

3. Accounts Receivable and Unbilled Revenue, Net

Accounts receivable and unbilled revenue, net, consisted of the following (in thousands):

 

 

 

March 27,

 

 

December 27,

 

 

 

2020

 

 

2019

 

Accounts receivable

 

$

38,400

 

 

$

35,884

 

Unbilled revenue

 

 

15,371

 

 

 

14,637

 

Allowance for doubtful accounts

 

 

(374

)

 

 

(743

)

Accounts receivable and unbilled revenue, net

 

$

53,397

 

 

$

49,778

 

 

Accounts receivable is net of uncollected advanced billings. Unbilled revenue represents revenue for services performed that have not been invoiced.

11


The Hackett Group, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

4. Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities consisted of the following (in thousands):

 

 

 

March 27,

 

 

December 27,

 

 

 

2020

 

 

2019

 

Accrued compensation and benefits

 

$

7,209

 

 

$

3,987

 

Accrued bonuses

 

 

1,068

 

 

 

3,932

 

Accrued dividend payable

 

 

 

 

 

5,791

 

Restructuring liability

 

 

526

 

 

 

1,584

 

Deferred revenue

 

 

11,922

 

 

 

9,583

 

Accrued sales, use, franchise and VAT tax

 

 

2,083

 

 

 

2,460

 

Non-cash stock compensation accrual

 

 

100

 

 

 

339

 

Income tax payable

 

 

2,705

 

 

 

2,611

 

Other accrued expenses

 

 

2,235

 

 

 

2,195

 

Total accrued expenses and other liabilities

 

$

27,848

 

 

$

32,482

 

 

 

5. Restructuring Costs 

During 2019, the Company recorded restructuring costs of $3.3 million, which was primarily related to the reduction of staff in Europe and Australia. As of March 27, 2020, the Company had $0.5 million of remaining commitments related to the restructuring charge.  

 

The following table sets forth the activity in the restructuring expense accruals (in thousands):

 

 

 

 

 

 

 

Exit, Closure and

 

 

 

 

 

 

Severance and Other

 

 

Consolidation

 

 

 

 

 

 

Employee Costs

 

 

of Facilities

 

Total

 

Accrual balance at December 27, 2019

$

 

1,247

 

$

 

337

 

 

1,584

 

Additions

 

 

 

 

 

 

 

 

Expenditures

 

 

(990

)

 

 

(68

)

 

(1,058

)

Accrual balance at March 27, 2020

$

 

257

 

$

 

269

 

 

526

 

 

 

6. Leases

 

The Company has operating leases for office space and, to a much lesser extent, operating leases for equipment. The Company’s office leases are between terms of 1 year and 10 years. Rents usually increase annually in accordance with defined rent steps or are based on current year consumer price index adjustments. Some of the lease agreements contain one or more of the following provisions: tenant allowances, rent holidays, lease premiums, and rent escalation clauses. There are typically no purchase options, residual value guarantees or restrictive covenants. When renewal options exist, the Company generally does not deem them to be reasonably certain to be exercised, and therefore the amounts are not recognized as part of our lease liability nor our right of use asset.

 

The components of lease expense were as follows for the three months ended March 27, 2020 (in thousands):

 

Operating lease cost

 

$

562

 

 

 

 

 

 

Total net lease costs

 

$

562

 

 

 

The weighted average remaining lease term is 4.7 years.  Assuming the Company exercises its opt-out option in year 5 for the London office lease, the weighted average remaining lease term would be 3.3 years. The weighted average discount rate utilized is 4%. The discount rates applied to each lease, reflects the Company’s estimated incremental borrowing rate. This includes an assessment of the Company’s credit rating to determine the rate that the Company would have to pay to borrow, on a collateralized basis for a similar term, an amount equal to our lease payments in a similar economic environment. For the three months ended March 27, 2020, the Company paid $0.6 million from operating cash flows for operating leases.

12


The Hackett Group, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

6. Leases (continued)

Future minimum lease payments under non-cancellable operating leases as of March 27, 2020, were as follows (in thousands):

 

2020 (excluding the three months ended March 27, 2020)

 

$

1,995

 

2021

 

 

2,539

 

2022

 

 

2,250

 

2023

 

 

1,292

 

2024

 

 

960

 

2025 and thereafter

 

 

1,207

 

Total lease payments

 

 

10,243

 

Less imputed interest

 

 

(925

)

Total

 

$

9,318

 

 

As of March 27, 2020, the Company does not have any additional operating leases that have not yet commenced, however the Company did extend its Miami office lease effective July 1, 2020, for an additional four years.

 

7. Credit Facility

The Company has a credit agreement with Bank of America, N.A. (“Bank of America”), which provides for borrowing up to $45.0 million pursuant to a revolving line of credit (the “Revolver”) which had a maturity date of May 9, 2021 (the “Credit Agreement”).

 

The obligations of Hackett under the Revolver are guaranteed by active existing and future material U.S. subsidiaries of Hackett (the “U.S. Subsidiaries”), and are secured by substantially all of the existing and future property and assets of Hackett and the U.S. Subsidiaries, a 100% pledge of the capital stock of the U.S. Subsidiaries, and a 66% pledge of the capital stock of Hackett’s direct foreign subsidiaries (subject to certain exceptions).

As of March 27, 2020 and December 27, 2019,  the Company did not have any outstanding balance .  The interest rates per annum applicable to borrowings under Revolver will be, at the Company’s option, equal to either a base rate or a LIBOR base rate, plus an applicable margin percentage. The applicable margin percentage is based on the consolidated leverage ratio, as defined in the Credit Agreement. As of March 27, 2020, the applicable margin percentage was 1.50% per annum based on the consolidated leverage ratio, in the case of LIBOR rate advances, and 0.75% per annum, in the case of base rate advances. The interest rate of the commitment fees as of March 27, 2020, was 0.125%.

The Company is subject to certain covenants, including total consolidated leverage, fixed cost coverage, adjusted fixed cost coverage and liquidity requirements, each as set forth in the Credit Agreement, subject to certain exceptions.  As of March 27, 2020, the Company was in compliance with all covenants.

Subsequent to March 27, 2020, the Company amended the Credit Agreement with Bank of America to extend the maturity date to November 30, 2022. The amendment also increased the interest payable on outstanding loans in respect of the Revolver by an additional per annum rate of 0.50% and provided for a LIBOR floor of 75 basis points. The borrowing capacity remains at $45.0 million.

8. Stock Based Compensation

During the three months ended March 27, 2020, the Company issued 556,604 restricted stock units at a weighted average grant-date fair value of $15.77 per share. As of March 27, 2020, the Company had 1,183,539 restricted stock units outstanding at a weighted average grant-date fair value of $16.75 per share. As of March 27, 2020, $17.0 million of total restricted stock unit compensation expense related to unvested awards had not been recognized and is expected to be recognized over a weighted average period of approximately 2.6 years.

As of March 27, 2020, the Company had 127,738 shares of common stock subject to vesting requirements outstanding at a weighted average grant-date fair value of $18.65 per share. As of March 27, 2020, $1.3 million of compensation expense related to common stock subject to vesting requirements had not been recognized and is expected to be recognized over a weighted average period of approximately 1.4 years.

Forfeitures for all of the Company’s outstanding equity are recognized as incurred.

13


The Hackett Group, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

9. Shareholders’ Equity

Stock Appreciation Rights (“SARs”)

As of March 27, 2020, the Company had 2.9 million SARs outstanding with an exercise price of $4.00 per share and an expiration date of February 2022.           

Treasury Stock

Under the Company’s share repurchase plan, the Company may repurchase shares of its outstanding common stock either on the open market or through privately negotiated transactions subject to market conditions and trading restrictions. During the three months ended March 27, 2020, the Company repurchased 73 thousand shares of its common stock at an average price of $13.79 per share for a total cost of $1.0 million.  As of March 27, 2020 the Company had a total authorization remaining of $5.6 million under its repurchase plan with a  total authorization of $147.2 million.    

During the quarter ended March 29, 2019, the Company repurchased 101 thousand shares of its common stock at an average price of $15.99 per share for a total cost of $1.6 million.  

The shares repurchased under the share repurchase plan during the quarter ended March 27, 2020, do not include 125 thousand shares which the Company bought back to satisfy employee net vesting obligations for a cost of $2.0 million. During the quarter ended March 29, 2019, the Company bought back 123 thousand shares at a cost of $2.4 million to satisfy employee net vesting obligations.       

Dividend Program

In 2019, the Company increased the annual dividend from $0.34 per share to $0.36 per share to be paid on a semi-annual basis. During the first quarter of 2020, the Company paid its second semi-annual dividend payment to shareholders, which was declared in 2019 of $5.8 million.  In addition, during the quarter ended March 27, 2020, the Company increased its annual dividend to $0.38 per share to be paid on a semi-annual basis.  These dividends were paid from U.S. domestic sources and are accounted for as an increase to accumulated deficit. The Company’s Board of Directors has deferred the Company’s regular bi-annual dividend declaration decision until closer to the end of the second quarter.  The Board of Directors will consider all relevant information available to us at that time before making a decision.  At this time, the Company cannot predict whether or not it will declare the bi-annual dividend, reduce the dividend, defer the decision further or suspend the dividend program for the rest of the year or longer. 

10. Transactions with Related Parties

During the three months ended March 27, 2020, the Company bought back 37 thousand shares of its common stock from members of its Board of Directors for $0.7 million, or $17.43 per share.

11. Litigation

The Company is involved in legal proceedings, claims, and litigation arising in the ordinary course of business not specifically discussed herein. In the opinion of management, the final disposition of such matters will not have a material adverse effect on the Company’s financial position, cash flows or results of operations.

14


The Hackett Group, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

12. Geographic and Group Information

Revenue before reimbursements, which is primarily based on the country of the contracting entity, was attributed to the following geographical areas (in thousands):

 

 

 

Quarter Ended

 

 

 

March 27,

 

 

March 29,

 

 

 

2020

 

 

2019

 

Revenue before reimbursements:

 

 

 

 

 

 

 

 

North America

 

$

57,054

 

 

$

52,537

 

International (primarily European countries)

 

 

8,132

 

 

 

9,833

 

Revenue before reimbursements

 

$

65,186

 

 

$

62,370

 

 

Long-lived assets are attributable to the following geographic areas (in thousands):

 

 

 

March 27,

 

 

December 27,

 

 

 

2020

 

 

2019

 

Long-lived assets:

 

 

 

 

 

 

 

 

North America

 

$

93,048

 

 

$

91,309

 

International (primarily European countries)

 

 

22,068

 

 

 

23,799

 

Total long-lived assets

 

$

115,116

 

 

$

115,108

 

 

As of March 27, 2020 and December 27, 2019, foreign assets included $13.8 million and $14.6 million, respectively, of goodwill related to acquisitions.

13. Acquisitions

Jibe Consulting, Inc.

Effective May 1, 2017, the Company acquired certain assets and liabilities of Jibe Consulting, Inc. (“Jibe”), a U.S.-based Oracle E-Business Suite and Oracle Cloud Business Application implementation firm. The acquisition of Jibe enhances the Company’s Cloud Application capabilities and strongly complements its market leading EPM transformation and technology implementation group.

The sellers’ purchase consideration was $5.4 million in cash, not subject to vesting, and $3.6 million in shares of the Company’s common stock, subject to vesting. The initial cash consideration was funded from borrowings under the Revolver. The equity that was issued has a four-year vesting term and will be recorded as compensation expense over the respective vesting period. In addition, the sellers earned contingent consideration of $0.7 million of cash and $1.0 million of equity based on the achievement of performance targets over the 18 months following the closing.     

The cash related to the contingent consideration, which was paid to the sellers, is not subject to service vesting and has been accounted for as part of the purchase consideration. The cash related to the contingent consideration, which was to be paid to the key employees, is subject to service vesting and was accounted for as compensation expense. Due to the projected earnout results, during the first quarter of 2019, the acquisition-related purchase consideration and compensation expense allocated to both the selling shareholders and key employees resulted in a benefit of $1.2 million in earnings from operations on the consolidated statement of operations related to the contingent earnout liability for the Jibe acquisition. These contingent liabilities were recorded in the consolidated balance sheet as current accrued expenses and other liabilities. During the fourth quarter of 2019, the contingent liabilities were settled.

 

 

15


 

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We intend the forward-looking statements to be covered by the safe harbor provisions for forward-looking statements. All statements regarding our expected financial position and operating results, our business strategy, our financing plans and forecasted demographic and economic trends relating to our industry are forward-looking statements. These statements can sometimes be identified by our use of forward-looking words such as “may,” “will,” “anticipate,” “estimate,” “expect,” or “intend” and similar expressions. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from the results, performance or achievements expressed or implied by the forward-looking statements. We cannot promise you that our expectations reflected in such forward-looking statements will turn out to be correct. Factors that impact such forward-looking statements include, among others, the impact of the coronavirus (COVID-19) pandemic and changes in worldwide and U.S. economic conditions that impact business confidence and the demand for our products and services, our ability to mitigate or manage disruptions posed by COVID-19 pandemic, our ability to effectively integrate acquisitions into our operations, our ability to retain existing business, our ability to attract additional business, our ability to effectively market and sell our product offerings and other services, the timing of projects and the potential for contract cancellation by our customers, changes in expectations regarding the business consulting and information technology industries, our ability to attract and retain skilled employees, possible changes in collections of accounts receivable due to the bankruptcy or financial difficulties of our customers, risks of competition, price and margin trends, foreign currency fluctuations and changes in general economic conditions, interest rates and our ability to obtain additional debt financing if needed. For a discussion of risks and actions taken in response to the coronavirus pandemic, see “Our results of operations have been adversely affected and could in the future be materially adversely impacted by the coronavirus pandemic (COVID-19).” Under Item 1A, “Risk Factors.”

 

An additional description of our risk factors is set forth in our Annual Report on Form 10-K for the year ended December 27, 2019. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Many of the risks, uncertainties and other factors identified in the Annual Report on From 10-K will likely be amplified by the COVID-19 pandemic.

OVERVIEW

The Hackett Group, Inc. (“Hackett” or the “Company”) is a leading IP-based strategic advisory and technology consulting firm that enables companies to achieve world-class business performance. By leveraging the comprehensive Hackett database, the world’s leading repository of enterprise business process performance metrics and best practice intellectual capital, our business and technology solutions help clients improve performance and maximize returns on technology investments. Only Hackett empirically defines world-class performance in sales, general and administrative and certain supply chain activities with analysis gained through more than 17,850 benchmark and performance studies over 26 years at over 6,420 of the world’s leading companies.

 

In the following discussion, Strategy and Business Transformation Group includes the results of our North America IP as-a-service offerings, which include our Executive Advisory Programs and Benchmarking Services, and our Business Transformation Practices (S&BT). ERP, EPM and Analytics Solutions includes the results of our North America Oracle EEA and SAP Solutions Practices (EEA). International includes results of our S&BT and EEA Practices primarily in Europe.

 

COVID-19 Pandemic Impact on Our Business

 

The level of revenue we achieve is based on our ability to deliver market leading services and solutions and to deploy skilled teams of professionals quickly. Our results of operations are affected by economic conditions, including macroeconomic conditions and levels of business confidence. In spite of some disruption in March 2020, the COVID-19 pandemic did not have a significant impact on our consolidated results of operations during the first quarter of 2020, however, we expect net revenue and dilutive earnings per share to be negatively impacted in the second quarter of 2020, and for negative impacts to continue until economic conditions improve. A substantial or prolonged economic downturn as a result of the COVID-19 pandemic or otherwise, weak or uncertain economic conditions or similar factors could adversely affect our clients’ financial condition which may further reduce our clients’ demand for our services.  

 

We are actively managing our business to respond to the impact of the COVID-19. We have reduced employee travel to only essential business needs and our employees have been working from home. We are generally following the requirements and protocols published by the U.S. Centers for Disease Control and the World Health Organization, and state and local governments. We cannot predict when or how we will begin to lift the actions put in place.

 

16


 

As a response to the ongoing COVID-19 pandemic, we have implemented plans to manage our costs and preserve cash. We have significantly limited the addition of new employees and third party contracted services, eliminated all travel except where necessary to meet customer needs, and acted to limit discretionary spending. To the extent the business disruption continues for an extended period, additional cost management actions will be considered. Any future asset impairment charges, increases in allowance for doubtful accounts, or restructuring charges could be more likely and will be dependent on the severity and duration of the pandemic.

 

In light of the evolving health, social, economic and business environment, governmental regulations or mandates, and business disruptions that could occur, the potential impact that COVID-19 could have on our financial condition and operating results remains highly uncertain.

 

For more information, see “Our results of operations have been adversely affected and could in the future be materially adversely impacted by the coronavirus pandemic (COVID-19).” under Item 1A, “Risk Factors.”

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, our results of operations and the percentage relationship to revenue before reimbursements of such results (in thousands and unaudited):

 

 

 

Quarter Ended

 

 

 

March 27,

 

 

March 29,

 

 

 

2020

 

 

2019

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue before reimbursements

 

$

65,186

 

 

 

100.0

%

 

$

62,370

 

 

 

100.0

%

Reimbursements

 

 

4,347

 

 

 

 

 

 

 

4,785

 

 

 

 

 

Total revenue

 

 

69,533

 

 

 

 

 

 

 

67,155

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of service:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Personnel costs before reimbursable expenses

 

 

41,113

 

 

 

63.1

%

 

 

38,934

 

 

 

62.4

%

Stock compensation expense

 

 

1,341

 

 

 

 

 

 

 

920

 

 

 

 

 

Acquisition-related compensation benefit

 

 

 

 

 

 

 

 

 

(129

)

 

 

 

 

Acquisition-related non-cash stock compensation expense

 

 

253

 

 

 

 

 

 

 

79

 

 

 

 

 

Reimbursable expenses

 

 

4,347

 

 

 

 

 

 

 

4,785

 

 

 

 

 

Total cost of service

 

 

47,054

 

 

 

 

 

 

 

44,589

 

 

 

 

 

Selling, general and administrative costs

 

 

13,897

 

 

 

21.3

%

 

 

14,042

 

 

 

22.5

%

Non-cash stock compensation expense

 

 

636

 

 

 

 

 

 

 

705

 

 

 

 

 

Amortization of intangible assets

 

 

238

 

 

 

 

 

 

 

299

 

 

 

 

 

Acquisition-related contingent consideration liability

 

 

 

 

 

 

 

 

 

(1,070

)

 

 

 

 

Total selling, general, and administrative expenses

 

 

14,771

 

 

 

 

 

 

 

13,976

 

 

 

 

 

Total costs and operating expenses

 

 

61,825

 

 

 

 

 

 

 

58,565

 

 

 

 

 

Income from operations

 

 

7,708

 

 

 

11.8

%

 

 

8,590

 

 

 

13.8

%

Other expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(37

)

 

 

 

 

 

 

(101

)

 

 

 

 

Income from continuing operations before income taxes

 

 

7,671

 

 

 

11.8

%

 

 

8,489

 

 

 

13.6

%

Income tax expense

 

 

2,136

 

 

 

3.3

%

 

 

1,440

 

 

 

2.3

%

Income from continuing operations (net of taxes)

 

 

5,535

 

 

 

 

 

 

 

7,049

 

 

 

 

 

Gain (loss) from discontinued operations

 

 

(8

)

 

 

 

 

 

 

45

 

 

 

 

 

Net income

 

$

5,527

 

 

 

8.5

%

 

$

7,094

 

 

 

11.4

%

Diluted net income per common share

 

$

0.17

 

 

 

 

 

 

$

0.22

 

 

 

 

 

 

Revenue. We are a global company with operations located in the United States and Western Europe. Our revenue is denominated in multiple currencies, primarily the U.S. Dollar, British Pound and Euro, and as a result is affected by currency exchange rate fluctuations. The impact of currency fluctuations did not have a significant impact on comparisons between the first quarter of 2020 and the comparable period of 2019. Revenue is analyzed based on geographical location of engagement team personnel.  

 

17


 

The following table sets forth revenue by group for the periods indicated (in thousands):

 

 

 

Quarter Ended

 

 

 

March 27,

 

 

March 29,

 

 

 

2020

 

 

2019

 

S&BT

 

$

24,684

 

 

$

24,647

 

EEA

 

 

33,002

 

 

 

27,413

 

International

 

 

7,500

 

 

 

10,310

 

Revenue from continuing operations before reimbursements

 

$

65,186

 

 

$

62,370

 

 

Our total Company net revenue from continuing operations, or revenue before reimbursements, increased 5%, to $65.2 million in the first quarter of 2020, as compared to $62.4 million in the same period of 2019. In the first quarter of 2020 and 2019, no customer accounted for more than 5% of our total revenue.

S&BT net revenue was $24.7 million during the first quarter of 2020, as compared to $24.6 million in the same period of 2019. This group’s business transformation practice is where nearly all of our March disruption from the COVID-19 pandemic impact was felt.

EEA net revenue increased 20%, to $33.0 million during the first quarter of 2020, as compared to $27.4 million in the same period of 2019. This increase was driven by strong growth from our SAP S4 HANA implementation practice, which also benefited from strong software sales activity, and strong growth from our Oracle Cloud ERP and OneStream Practices.

Hackett international net revenue from continuing operations decreased 27% in the first quarter of 2020, as compared to the same period in 2019, as Europe continues to be impacted by lengthened client decision-making from economic uncertainty. Total Company international net revenue accounted for 12% and 17% of total Company net revenue during both the first quarter of 2020 and 2019, respectively.

Reimbursements as a percentage of total net revenue were 7% and 8% during both the first quarter of 2020 and 2019, respectively. Reimbursements are project travel-related expenses passed through to a client with no associated margin.

Cost of Service. Cost of service primarily consists of salaries, benefits and incentive compensation for consultants and subcontractor fees; acquisition-related cash and stock compensation costs; non-cash stock compensation expense; and reimbursable expenses associated with projects.

Personnel costs increased 6%, to $41.1 million, for the first quarter of 2020 from $38.9 million in the same period of 2019. The increase was primarily a result of increased headcount and higher utilization of subcontractors during the quarter.  Personnel costs before reimbursable expenses, as a percentage of revenue before reimbursements, were 63% for the first quarter of 2020 and 62% for the first quarter of 2019.

Non-cash stock compensation expense was $1.3 million for the first quarter of 2020, as compared to $0.9 million for the same period of 2019.

The acquisition-related compensation benefit in 2019 related to the accrual for the cash portion of contingent consideration related to two acquisitions, all of which is subject to service vesting and as a result has been recorded as compensation expense. The liabilities were settled during the fourth quarter of 2019.

Acquisition related non-cash stock compensation expense in 2020 and 2019 primarily related to equity issued in relation to acquisitions between 2014 and 2017.

Selling, General and Administrative Costs (“SG&A”). SG&A primarily consists of salaries, benefits and incentive compensation for the selling, marketing, administrative and executive employees; non-cash compensation expense, amortization of intangible assets, acquisition related costs and various other overhead expenses.

SG&A costs were $13.9 million for the first quarter of 2020, as compared to $14.0 million for the same period in 2019. These SG&A costs as a percentage of revenue before reimbursements were 21% and 23% during the first quarter of 2020 and 2019, respectively.

Amortization expense was $0.2 million in the first quarter of 2020, as compared to $0.3 million in the same period in 2019. The amortization expense in 2020 relates to the amortization of the intangible asset acquired in our acquisitions and the buyout of our partner’s joint venture interest in the CGBS Training and Certification Programs in 2017. The intangible assets related to the acquisitions will continue to amortize until 2022 and the intangible assets related to the joint venture will continue to amortize until 2021.

Acquisition-related Contingent Consideration Liability. During the first quarter of 2019, the liability related to the cash portion of the Jibe acquisition contingent consideration due to the selling shareholders, which was not subject to vesting, resulted in a benefit due to the reduction of the contingent earnout liability. This liability was settled in the fourth quarter of 2019.    

18


 

Income Taxes. During the first quarter of 2020, we recorded $2.1 million of income tax expense related to certain federal, foreign and state taxes which reflected an effective tax rate of 28%. In the first quarter of 2019, we recorded $1.4 million of income tax expense related to certain federal, foreign and state taxes which reflected an effective tax rate of 17%.  The increase in the quarter ending March 27, 2020, GAAP income tax rate is primarily due to a lower tax benefit related to share based compensation when compared to the same period in the prior year.

Liquidity and Capital Resources

As of March 27, 2020, and December 27, 2019, we had $23.3 million and $26.0 million, respectively, classified in cash on the consolidated balance sheets.  We currently believe that available funds (including the cash on hand and funds available for borrowing capacity under our revolving line of credit (the “Revolver”)) and cash flows generated by operations will be sufficient to fund our working capital and capital expenditure requirements for at least the next twelve months. We may decide to raise additional funds in order to fund expansion, to develop new or further enhance products and services, to respond to competitive pressures, or to acquire complementary businesses or technologies. There is no assurance that additional financing would be available when needed or desired.

The following table summarizes our cash flow activity (in thousands):

 

 

 

Quarter Ended

 

 

 

March 27,

 

 

March 29,

 

 

 

2020

 

 

2019

 

Cash flows provided by operating activities

 

$

6,521

 

 

$

6,759

 

Cash flows used in investing activities

 

$

(533

)

 

$

(1,505

)

Cash flows used in financing activities

 

$

(8,759

)

 

$

(8,397

)

 

Cash Flows from Operating Activities

Net cash provided by operating activities was $6.5 million during the first three months of 2020, as compared to $6.8 million during the same period in 2019. In 2020, the net cash provided by operating activities was primarily due to net income adjusted for non-cash items, partially offset by an increase in accounts receivable and unbilled revenue.  In 2019, to net income adjusted for non-cash items, partially offset by an increase in accounts receivable and unbilled revenue and a decrease in accounts payable and accrued expenses and liabilities.

 

Cash Flows from Investing Activities

Net cash used in investing activities was $0.5 million and $1.5 million during the first three months of 2020 and 2019, respectively. During 2020, cash flows used in investing activities included investments related to the development of our Quantum Leap benchmark technology. In 2019, cash flows used in investing activities included investments related to our internal corporate systems, the global rollout of new laptops which occurs every three to four years, and the development of our Quantum Leap benchmark technology.  

 

Cash Flows from Financing Activities

Net cash used in financing activities was $8.8 million and $8.4 million during 2020 and 2019, respectively. The usage of cash in 2020 primarily related to the dividend payment of $5.8 million and the repurchase of $3.0 million of the Company’s common stock. The usage of cash in 2019 was primarily related to the dividend payment of $5.4 million and the repurchase of $4.0 million of the Company’s common stock, partially offset by borrowing under the Revolver of $1.0 million.

As of March 27, 2020, we did not have any outstanding borrowings under the Revolver, leaving us with a capacity of approximately $45.0 million. See Note 6, “Credit Facility,” to our consolidated financial statements included in this Quarterly Report on Form 10-Q for more information.

Recently Issued Accounting Standards

For a discussion of recently issued accounting standards, see Note 1, “Basis of Presentation and General Information,” to our consolidated financial statements included in this Quarterly Report on Form 10-Q and Note 1, “Basis of Presentation and General Information,” to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 27, 2019.

 

19


 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

As of March 27, 2020, our exposure to market risk related primarily to changes in interest rates and foreign currency exchange rate risks.

Interest Rate Risk

Our exposure to market risk for changes in interest rates relates primarily to the Revolver, which is subject to variable interest rates. The interest rates per annum applicable to loans under the Revolver will be, at our option, equal to either a base rate or a LIBOR rate for one-, two-, three- or nine-month interest periods chosen by us in each case, plus an applicable margin percentage. A 100-basis point increase in our interest rate under our Revolver would not have had a material impact on our results of operations for the quarter ended March 27, 2020.

Exchange Rate Sensitivity

We face exposure to adverse movements in foreign currency exchange rates as a portion of our revenue, expenses, assets and liabilities are denominated in currencies other than the U.S. Dollar, primarily the British Pound, the Euro and the Australian Dollar. These exposures may change over time as business practices evolve.

Item 4.

Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q.

Changes in Internal Control Over Financial Controls

There were no changes in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.  

20


 

PART II — OTHER INFORMATION

Item 1.

Legal Proceedings.

The Company is involved in legal proceedings, claims, and litigation arising in the ordinary course of business not specifically discussed herein. In the opinion of management, the final disposition of such matters will not have a material adverse effect on the Company’s financial position, cash flows or results of operations.

Item 1A.

Risk Factors.

 

For a discussion of our potential risks and uncertainties, see the risk factor below and the information under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 27, 2019 (the “Annual Report”).

 

Our results of operations have been adversely affected and could in the future be materially adversely impacted by the coronavirus pandemic (COVID-19).

 

The global spread of the coronavirus (COVID-19) has created significant volatility, uncertainty and economic disruption. Our clients, and therefore our business and revenues, are sensitive to negative changes in general economic conditions and business confidence. We expect that the negative impacts of the COVID-19 pandemic on our operating revenue may continue until economic conditions improve.

 

We continue to work with our clients and employees to responsibly address this global pandemic. We will continue to monitor the situation and assess possible implications to our business and our clients and employees and will take appropriate actions in an effort to mitigate adverse consequences. We cannot assure you that we will be successful in any such mitigation efforts. The extent to which the coronavirus pandemic impacts our business, operations and financial results will depend on numerous evolving factors that we may not be able to accurately predict, including: the duration, severity and scope of the pandemic; governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic; the impact of the pandemic on economic activity and actions taken in response; the effect on our clients and client demand for our services and solutions; the ability of our clients to pay for our services and solutions; and any closures of our clients’ offices and facilities. Clients may also slow down decision making, delay planned work or seek to terminate existing agreements. Any of these events could cause or contribute to the risks and uncertainties enumerated in “Item 1A. Risk Factors” and elsewhere in the Annual Report and could materially adversely affect our business, financial condition, results of operations and/or stock price.  

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

Issuer Purchases of Equity Securities

During the quarter ended March 27, 2020, the Company repurchased 73 thousand shares of its common stock under the repurchase plan approved by the Company's Board of Directors. As of March 27, 2020, the Company had $5.6 million of authorization remaining under the repurchase plan.

 

 

 

 

 

 

 

 

 

 

 

Total Number

 

 

Maximum Dollar

 

 

 

 

 

 

 

 

 

 

 

of Shares as Part

 

 

Value That May

 

 

 

 

 

 

 

 

 

 

 

of Publicly

 

 

Yet be Purchased

 

 

 

Total Number

 

 

Average Price

 

 

Announced

 

 

Under the

 

Period

 

of Shares

 

 

Paid per Share

 

 

Program

 

 

Program

 

Balance as of December 27, 2019

 

 

 

 

$

 

 

 

 

 

$

1,651,222

 

December 28, 2019 to January 24, 2020

 

 

 

 

$

 

 

 

 

 

$

1,651,222

 

January 25, 2020 to February 21, 2020

 

 

37,361

 

 

$

17.43

 

 

 

 

 

$

6,000,020

*

February 22, 2020 to March 27, 2020

 

 

35,595

 

 

$

9.98

 

 

 

 

 

$

5,644,867

 

 

 

 

72,956

 

 

$

13.79

 

 

 

 

 

 

 

 

 

*

The Company’s Board of Directors approved an additional share repurchase authorization of $5.0 million.

 

Shares repurchased during the quarter ended March 27, 2020 under the repurchase plan approved by the Company's Board of Directors do not include 125 thousand shares for a cost of $2.0 million that the Company bought back to satisfy employee net vesting obligations.

21


 

Item 6.

Exhibits

 

Exhibit No.

 

Exhibit Description

    3.1

 

Second Amended and Restated Articles of Incorporation of the Registrant, as amended (incorporated herein by reference to the Registrant's Form 10-K for the year ended December 29, 2000).

 

 

 

    3.2

 

Articles of Amendment of the Articles of Incorporation of the Registrant (incorporated herein by reference to the Registrant's Form 10-K for the year ended December 28, 2007).

 

 

 

    3.3

 

Amended and Restated Bylaws of the Registrant, as amended (incorporated herein by reference to the Registrant's Form 10-K for the year ended December 29, 2000).

 

 

 

    3.4

 

Amendment to Amended and Restated Bylaws of the Registrant (incorporated herein by reference to the Registrant's Form 8-K filed on March 31, 2008).

 

 

 

    3.5

 

Amendment to Amended and Restated Bylaws of the Registrant (incorporated herein by reference to the Registrant's Form 8-K filed on January 21, 2015).

 

 

 

  10.1

 

Amendment No. 2 to Second Amended and Restated Credit Agreement, dated April  3, 2020, among The Hackett Group, Inc., the material domestic subsidiaries of The Hackett Group, Inc. named on the signatures pages thereto, and Bank of America, N.A., as lender (incorporated herein by reference to the Registrant’s Form 8-K filed on April 3, 2020.

 

 

 

  31.1*

 

Certification by CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

  31.2*

 

Certification by CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

  32*

 

Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

101.INS**

 

XBRL Instance Document

 

 

 

101.SCH**

 

XBRL Taxonomy Extension Schema

 

 

 

101.CAL**

 

XBRL Taxonomy Extension Calculation Linkbase

 

 

 

101.DEF**

 

XBRL Taxonomy Extension Definition Linkbase

 

 

 

101.LAB**

 

XBRL Taxonomy Extension Label Linkbase

 

 

 

101.PRE**

 

XBRL Taxonomy Extension Presentation Linkbase

 

*

Filed herewith

**

Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability.

 

22


 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

The Hackett Group, Inc.

 

 

 

Date: May 6, 2020

 

/s/ Robert A. Ramirez

 

 

Robert A. Ramirez

 

 

Executive Vice President, Finance and Chief Financial Officer

 

 

23

hckt-ex311_8.htm

Exhibit 31.1

CERTIFICATION PURSUANT TO

RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Ted A. Fernandez, certify that:

 

1.

I have reviewed this Quarterly Report on Form 10-Q of The Hackett Group, Inc.;

 

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date:  May 6, 2020

 

By:

/s/ Ted A. Fernandez

 

 

 

Ted A. Fernandez

 

 

 

Chairman of the Board and Chief Executive Officer

 

 

 

The Hackett Group, Inc.

 

hckt-ex312_6.htm

Exhibit 31.2

CERTIFICATION PURSUANT TO

RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Robert A. Ramirez, certify that:

 

1.

I have reviewed this Quarterly Report on Form 10-Q of The Hackett Group, Inc.;

 

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date:  May 6, 2020

 

By:

/s/ Robert A. Ramirez

 

 

 

Robert A. Ramirez

 

 

 

Executive Vice President, Finance and Chief Financial Officer

 

 

 

The Hackett Group, Inc.

 

hckt-ex32_7.htm

Exhibit 32

THE HACKETT GROUP, INC

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of The Hackett Group, Inc. (the “Company”) on Form 10- Q for the period ended March 27, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Ted A. Fernandez, Chairman of the Board and Chief Executive Officer, and Robert A. Ramirez, Executive Vice President, Finance and Chief Financial Officer, of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that:

 

(1)

The Report fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934; and

 

 

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

 

 

By:

/s/ Ted A. Fernandez

 

 

 

Ted A. Fernandez

 

 

 

Chairman of the Board and Chief Executive Officer

 

 

 

May 6, 2020

 

 

 

 

 

 

By:

/s/ Robert A. Ramirez

 

 

 

Robert A. Ramirez

 

 

 

Executive Vice President, Finance and Chief Financial Officer

 

 

 

May 6, 2020

 

 

A signed original of this statement required by Section 906 has been provided to The Hackett Group, Inc. and will be retained by The Hackett Group, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

 

v3.20.1
Geographic and Group Information (Geographic Revenue before Reimbursements) (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 27, 2020
Mar. 29, 2019
Revenues from External Customers and Long-Lived Assets [Line Items]    
Revenue before reimbursements $ 69,533 $ 67,155
Revenue Before Reimbursements [Member]    
Revenues from External Customers and Long-Lived Assets [Line Items]    
Revenue before reimbursements 65,186 62,370
Revenue Before Reimbursements [Member] | North America [Member]    
Revenues from External Customers and Long-Lived Assets [Line Items]    
Revenue before reimbursements 57,054 52,537
Revenue Before Reimbursements [Member] | International (Primarily European Countries) [Member]    
Revenues from External Customers and Long-Lived Assets [Line Items]    
Revenue before reimbursements $ 8,132 $ 9,833
v3.20.1
Credit Facility (Narrative) (Details) - Revolving line of credit facility [Member] - USD ($)
3 Months Ended
Mar. 28, 2020
Mar. 27, 2020
Dec. 27, 2019
Line of Credit Facility [Line Items]      
Borrowing capacity under credit facility   $ 45,000,000  
Maturity date   May 09, 2021  
Pledge of capital stock to U.S. subsidiaries   100.00%  
Pledge of capital stock to direct foreign subsidiaries   66.00%  
Outstanding balance   $ 0 $ 0
Commitment fees percentage   0.125%  
Subsequent Event [Member]      
Line of Credit Facility [Line Items]      
Borrowing capacity under credit facility $ 45,000,000    
Maturity date Nov. 30, 2022    
Increase in interest payable 0.50%    
London Interbank Offered Rate (LIBOR) [Member]      
Line of Credit Facility [Line Items]      
Margin percentage base rate   1.50%  
Base Rate [Member]      
Line of Credit Facility [Line Items]      
Margin percentage base rate   0.75%  
LIBOR Floor Rate [Member] | Subsequent Event [Member]      
Line of Credit Facility [Line Items]      
Margin percentage base rate 0.75%    
v3.20.1
Basis of Presentation and General Information (Policies)
3 Months Ended
Mar. 27, 2020
Organization Consolidation And Presentation Of Financial Statements [Abstract]  
Basis of Presentation

Basis of Presentation

The accompanying consolidated financial statements of The Hackett Group, Inc. (“Hackett” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and include the Company’s accounts and those of its wholly-owned subsidiaries which the Company is required to consolidate. All intercompany transactions and balances have been eliminated in consolidation.

In the opinion of management, the accompanying consolidated financial statements reflect all normal and recurring adjustments which are necessary for a fair presentation of the Company’s financial position, results of operations, and cash flows as of the dates and for the periods presented. The consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, these statements do not include all the disclosures normally required by U.S. GAAP for annual financial statements and should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 27, 2019, included in the Annual Report on Form 10-K filed by the Company with the SEC on March 5, 2020. The consolidated results of operations for the quarter ended March 27, 2020, are not necessarily indicative of the results to be expected for any future period or for the full fiscal year.

Use of Estimates

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Revenue Recognition

Revenue Recognition

The Company’s revenue is substantially generated from providing professional services to its clients. The Company also generates revenue from software licenses, software support, maintenance and subscriptions to its executive and best practices advisory programs. A single contract could include one or multiple performance obligations. For those contracts that have multiple performance obligations, the Company allocates the total transaction price to each performance obligation based on its relative standalone selling price.  The Company determines the standalone selling price based on the respective selling price of the individual elements when they are sold separately.  

Revenue is recognized when control of the goods and services provided are transferred to the Company’s customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods and services using the following steps: 1) identify the contract, 2) identify the performance obligations, 3) determine the transaction price, 4) allocate the transaction price to the performance obligations in the contract, and 5) recognize revenue as or when we satisfy the performance obligations.  

The Company typically satisfies its performance obligations for professional services over time as the related services are provided. The performance obligations related to software support, maintenance and subscriptions to our executive and best practice advisory programs are typically satisfied evenly over the course of the service period. Other performance obligations, such as software licenses, are satisfied at a point in time.

The Company generates its revenue under four types of billing arrangements: fixed-fee (including software license revenue); time-and-materials; executive and best practice advisory services; and software sales, maintenance and support.

In fixed-fee billing arrangements, which would also include contracts with capped fees, the Company agrees to a pre-established fee or fee cap in exchange for a predetermined set of professional services. The Company sets the fees based on its estimates of the costs and timing for completing the engagements. The Company generally recognizes revenue under fixed-fee or capped fee arrangements using a proportionate performance approach, which is based on work completed to-date as compared to estimates of the total services to be provided under the engagement. Estimates of total engagement revenue and cost of services are monitored regularly during the term of the engagement. If the Company’s estimates indicate a potential loss, such loss is recognized in the period in which the loss first becomes probable and reasonably estimable. The customer is invoiced based on the contractual agreement between the parties, typically bi-weekly, monthly or milestone driven, with net thirty-day terms.

Time-and-material billing arrangements require the client to pay based on the number of hours worked by the Company’s consultants at agreed upon hourly rates. The Company recognizes revenue under time-and-material arrangements as the related services or goods are provided, using the right to invoice practical expedient which allows us to recognize revenue in the amount based on the number of hours worked and the agreed upon hourly rates.  The customer is invoiced based on the contractual agreement between the parties, typically bi-weekly, monthly or milestone driven, with net thirty-day terms.

1. Basis of Presentation and General Information (continued)

 

Advisory services contracts are typically in the form of a subscription agreement which allows the customer access to the Company’s executive and best practice advisory programs.  There is typically a single performance obligation and the transaction price is the contractual amount of the subscription agreement.  Revenue from advisory service contracts is recognized ratably over the life of the agreements.  Customers are typically invoiced at the inception of the contract, with net thirty-day terms.

The resale of software and maintenance contracts are in the form of SAP America software license or maintenance agreements provided by SAP America.  SAP is the principal and the Company is the agent in these transactions as the Company does not obtain title to the software and the maintenance is sold simultaneously.  The transaction price is the Company’s agreed-upon percentage of the software license or maintenance amount in the contract with the vendor.  Revenue for the resale of software licenses is recognized upon contract execution and customer’s receipt of the software. Revenue from maintenance contracts is recognized ratably over the life of the agreements.  The customer is typically invoiced at contract inception, with net thirty-day terms.

Expense reimbursements that are billable to clients are included in total revenue and are substantially all billed as time-and-material billing arrangements.  Therefore, the Company recognizes all reimbursable expenses as revenue as the related services are provided, using the right to invoice practical expedient. Reimbursable expenses are recognized as expenses in the period in which the expense is incurred.  Any expense reimbursements that are billable to clients under fixed-fee billing arrangements are recognized in line with the proportionate performance approach.  

The payment terms and conditions in our customer contracts vary. The agreements entered into in connection with a project, whether time-and-materials, fixed-fee or capped-fee based, typically allow clients to terminate early due to breach or for convenience with a 30 days’ notice. In the event of termination, the client is contractually required to pay for all time, materials and expenses incurred by the Company through the effective date of the termination. In addition, from time to time the Company enters into agreements with its clients that limit its right to enter into business relationships with specific competitors of that client for a specific time period. These provisions typically prohibit the Company from performing a defined range of services which it might otherwise be willing to perform for potential clients. These provisions are generally limited to six to twelve months and usually apply only to specific employees or the specific project team.

Sales tax collected from customers and remitted to the applicable taxing authorities is accounted for on a net basis, with no impact to revenue.

Differences between the timing of billings and the recognition of revenue are recognized as either unbilled services or deferred revenue in the accompanying consolidated balance sheets. Revenue recognized for services performed but not yet billed to clients are recorded as unbilled services. Revenue recognized, but for which are not yet entitled to bill because certain events, such as the completion of the measurement period, are recorded as contract assets and included within unbilled services. Client prepayments are classified as deferred revenue and recognized over future periods as earned in accordance with the applicable engagement agreement. See Note 3 for the accounts receivable and unbilled revenue balances and see Note 4 for the deferred revenue balances. During the quarter ended March 27, 2020, the Company recognized $4.4 million of revenue as a result of changes in deferred revenue liability balance, as compared to $4.0 million for the quarter ended March 29, 2019. 

The following table reflects the Company’s disaggregation of total revenue including reimbursable expenses for the quarters ended March 27, 2020 and March 29, 2019:

 

 

 

Quarter Ended

 

 

 

March 27,

 

 

March 29,

 

 

 

2020

 

 

2019

 

Consulting

 

$

63,311

 

 

$

61,831

 

Software License Sales

 

 

1,875

 

 

 

539

 

Revenue before reimbursements from continuing operations

 

$

65,186

 

 

$

62,370

 

 

Capitalized Sales Commissions

Sales commissions earned by the Company’s sales force are considered incremental and recoverable costs of obtaining a contract with a customer. These costs are deferred and then amortized as project revenue is recognized.  We determined the period of amortization by taking into consideration the customer contract period, which are generally less than 12 months. Commission expense is included in Selling, General and Administrative Costs in the accompanying consolidated statements of operations. As of December 27, 2019, and December 28, 2018, the Company had $1.6 million and $1.2 million, respectively, of deferred commissions, of which $0.4 million and $0.2 million was amortized during the first three months of the year 2020 and 2019, respectively.  No impairment loss was recognized relating to the capitalization of deferred commission.

 

1. Basis of Presentation and General Information (continued)

Practical Expedients

The Company does not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less.  The Company does not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between payment by the customer and the transfer of the promised goods or services to the customer will be less than one year.

Fair Value

Fair Value

The Company’s financial instruments consist of cash and cash equivalents, accounts receivable and unbilled revenue, accounts payable, accrued expenses and other liabilities and debt. As of March 27, 2020 and December 27, 2019, the carrying amount of each financial instrument approximated the instrument’s respective fair value due to the short-term nature and maturity of these instruments.

The Company uses significant other observable market data or assumptions (Level 2 inputs as defined in accounting guidance) that it believes market participants would use in pricing debt. The fair value of the debt approximated the carrying amount, using Level 2 inputs, due to the short-term variable interest rates based on market rates.

Business Combinations

Business Combinations

The Company applies the provisions of ASC 805, Business Combinations, in the accounting for its acquisitions, which requires recognition of the assets acquired and the liabilities assumed at their acquisition date fair values, separately from goodwill. Goodwill as of the acquisition date is measured as the excess of consideration transferred and the net of the acquisition date fair values of the tangible and identifiable intangible assets acquired and liabilities assumed. While the Company uses its best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date as well as contingent consideration, where applicable, its estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, that may be up to 12 months from the acquisition date, the Company records adjustments to the assets acquired and liabilities assumed with a corresponding adjustment to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, the impact of any subsequent adjustments is included in the consolidated statements of operations.

 

COVID-19 Pandemic Impact on Our Business

COVID-19 Pandemic Impact on Our Business

 

The level of revenue the Company can achieve is based on the Company’s ability to deliver market leading services and solutions and to deploy skilled teams of professionals quickly. The Company’s results of operations are affected by economic conditions, including macroeconomic conditions and levels of business confidence. In spite of some disruption in March 2020, the COVID-19 pandemic did not have a significant impact on the Company’s consolidated results of operations during the first quarter of 2020, however, it expects net revenue and dilutive earnings per share to be negatively impacted in the second quarter of 2020, and for negative impacts to continue until economic conditions improve. A substantial or prolonged economic downturn as a result of the COVID-19 pandemic or otherwise, weak or uncertain economic conditions or similar factors could adversely affect our clients’ financial condition which may further reduce the Company’s clients’ demand for our services.  

 

The Company is actively managing its business to respond to the impact of the COVID-19. The Company has reduced employee travel to only essential business needs and the employees have been working from home. The Company is generally following the requirements and protocols published by the U.S. Centers for Disease Control and the World Health Organization, and state and local governments. The Company cannot predict when or how it will begin to lift the actions put in place.

 

As a response to the ongoing COVID-19 pandemic, the Company has implemented plans to manage its costs and preserve cash. The Company has significantly limited the addition of new employees and third party contracted services, eliminated all travel except where necessary to meet customer needs, and acted to limit discretionary spending. To the extent the business disruption continues for an extended period, additional cost management actions will be considered.  Any future asset impairment charges, increases in allowance for doubtful accounts, or restructuring charges could be more likely and will be dependent on the severity and duration of the pandemic.

 

In light of the evolving health, social, economic and business environment, governmental regulations or mandates, and business disruptions that could occur, the potential impact that COVID-19 could have on the Company’s financial condition and operating results remains highly uncertain.

 

Recently Issued Accounting Standards

Recently Issued Accounting Standards

In January 2017, the FASB issued ASU 2017-04, which eliminates Step 2 from the goodwill impairment test. For public companies, this update was effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted for interim and annual goodwill impairment test with a measurement date after January 1, 2017. The adoption did not have a material impact on the Company’s consolidated financial statements.

In January 2020, the Company adopted ASU 2016-13 which changes how entities measure credit losses for most financial assets, including trade accounts receivable. The adoption did not have a material impact on the financial statements.

Reclassifications

Reclassifications

Certain prior period amounts in the consolidated financial statements, and notes thereto, have been reclassified to conform to current period presentation.

v3.20.1
Accrued Expenses and Other Liabilities (Tables)
3 Months Ended
Mar. 27, 2020
Accrued Liabilities And Other Liabilities Current [Abstract]  
Components of Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities consisted of the following (in thousands):

 

 

 

March 27,

 

 

December 27,

 

 

 

2020

 

 

2019

 

Accrued compensation and benefits

 

$

7,209

 

 

$

3,987

 

Accrued bonuses

 

 

1,068

 

 

 

3,932

 

Accrued dividend payable

 

 

 

 

 

5,791

 

Restructuring liability

 

 

526

 

 

 

1,584

 

Deferred revenue

 

 

11,922

 

 

 

9,583

 

Accrued sales, use, franchise and VAT tax

 

 

2,083

 

 

 

2,460

 

Non-cash stock compensation accrual

 

 

100

 

 

 

339

 

Income tax payable

 

 

2,705

 

 

 

2,611

 

Other accrued expenses

 

 

2,235

 

 

 

2,195

 

Total accrued expenses and other liabilities

 

$

27,848

 

 

$

32,482

 

v3.20.1
Basis of Presentation and General Information (Narrative) (Details) - USD ($)
3 Months Ended
Mar. 27, 2020
Mar. 29, 2019
Dec. 27, 2019
Dec. 28, 2018
Basis Of Presentation And General Information [Line Items]        
Revenue recognized as a result of change in contract liability $ 4,400,000 $ 4,000,000    
Deferred commissions     $ 1,600,000 $ 1,200,000
Commissions expense 400,000 200,000    
Impairment loss recognized to capitalization of deferred commission $ 0 $ 0    
Minimum [Member]        
Basis Of Presentation And General Information [Line Items]        
Business relationship agreement period 6 months      
Maximum [Member]        
Basis Of Presentation And General Information [Line Items]        
Business relationship agreement period 12 months      
Customer contract period 12 months      
v3.20.1
Leases (Components of Lease Expense) (Details)
$ in Thousands
3 Months Ended
Mar. 27, 2020
USD ($)
Leases [Abstract]  
Operating lease cost $ 562
Total net lease costs $ 562
v3.20.1
Accrued Expenses and Other Liabilities (Details) - USD ($)
$ in Thousands
Mar. 27, 2020
Dec. 27, 2019
Accrued Liabilities And Other Liabilities Current [Abstract]    
Accrued compensation and benefits $ 7,209 $ 3,987
Accrued bonuses 1,068 3,932
Accrued dividend payable   5,791
Restructuring liability 526 1,584
Deferred revenue 11,922 9,583
Accrued sales, use, franchise and VAT tax 2,083 2,460
Non-cash stock compensation accrual 100 339
Income tax payable 2,705 2,611
Other accrued expenses 2,235 2,195
Total accrued expenses and other liabilities $ 27,848 $ 32,482
v3.20.1
Basis of Presentation and General Information (Summary of Disaggregation of Total Revenue Including Reimbursable Expenses (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 27, 2020
Mar. 29, 2019
Disaggregation Of Revenue [Line Items]    
Revenue before reimbursements from continuing operations $ 69,533 $ 67,155
Consulting [Member]    
Disaggregation Of Revenue [Line Items]    
Revenue before reimbursements from continuing operations 63,311 61,831
Software License Sales [Member]    
Disaggregation Of Revenue [Line Items]    
Revenue before reimbursements from continuing operations 1,875 539
Revenue Before Reimbursements [Member]    
Disaggregation Of Revenue [Line Items]    
Revenue before reimbursements from continuing operations $ 65,186 $ 62,370
v3.20.1
Leases
3 Months Ended
Mar. 27, 2020
Leases [Abstract]  
Leases

6. Leases

 

The Company has operating leases for office space and, to a much lesser extent, operating leases for equipment. The Company’s office leases are between terms of 1 year and 10 years. Rents usually increase annually in accordance with defined rent steps or are based on current year consumer price index adjustments. Some of the lease agreements contain one or more of the following provisions: tenant allowances, rent holidays, lease premiums, and rent escalation clauses. There are typically no purchase options, residual value guarantees or restrictive covenants. When renewal options exist, the Company generally does not deem them to be reasonably certain to be exercised, and therefore the amounts are not recognized as part of our lease liability nor our right of use asset.

 

The components of lease expense were as follows for the three months ended March 27, 2020 (in thousands):

 

Operating lease cost

 

$

562

 

 

 

 

 

 

Total net lease costs

 

$

562

 

 

 

The weighted average remaining lease term is 4.7 years.  Assuming the Company exercises its opt-out option in year 5 for the London office lease, the weighted average remaining lease term would be 3.3 years. The weighted average discount rate utilized is 4%. The discount rates applied to each lease, reflects the Company’s estimated incremental borrowing rate. This includes an assessment of the Company’s credit rating to determine the rate that the Company would have to pay to borrow, on a collateralized basis for a similar term, an amount equal to our lease payments in a similar economic environment. For the three months ended March 27, 2020, the Company paid $0.6 million from operating cash flows for operating leases.

6. Leases (continued)

Future minimum lease payments under non-cancellable operating leases as of March 27, 2020, were as follows (in thousands):

 

2020 (excluding the three months ended March 27, 2020)

 

$

1,995

 

2021

 

 

2,539

 

2022

 

 

2,250

 

2023

 

 

1,292

 

2024

 

 

960

 

2025 and thereafter

 

 

1,207

 

Total lease payments

 

 

10,243

 

Less imputed interest

 

 

(925

)

Total

 

$

9,318

 

 

As of March 27, 2020, the Company does not have any additional operating leases that have not yet commenced, however the Company did extend its Miami office lease effective July 1, 2020, for an additional four years.

v3.20.1
Consolidated Statements of Shareholders' Equity - USD ($)
shares in Thousands, $ in Thousands
Total
Common Stock [Member]
Additional Paid-in Capital [Member]
Treasury Stock [Member]
Accumulated Deficit [Member]
Accumulated Other Comprehensive Loss [Member]
Balance at Dec. 28, 2018 $ 123,590 $ 57 $ 296,955 $ (136,604) $ (25,424) $ (11,394)
Balance, Shares at Dec. 28, 2018   56,615   (27,086)    
Issuance of common stock (2,372) $ 1 (2,373)      
Issuance of common stock, Shares   394        
Treasury stock purchased (1,616)     $ (1,616)    
Treasury stock purchased, Shares       (102)    
Amortization of restricted stock units and common stock subject to vesting requirements 2,394   2,394      
Net income 7,094       7,094  
Foreign currency translation 657         657
Balance at Mar. 29, 2019 129,747 $ 58 296,976 $ (138,220) (18,330) (10,737)
Ending Balance, Shares at Mar. 29, 2019   57,009   (27,188)    
Balance at Dec. 27, 2019 137,614 $ 58 303,707 $ (141,887) (13,714) (10,550)
Balance, Shares at Dec. 27, 2019   57,181   (27,425)    
Issuance of common stock (1,962)   (1,962)      
Issuance of common stock, Shares   291        
Treasury stock purchased (1,006)     $ (1,006)    
Treasury stock purchased, Shares       (73)    
Amortization of restricted stock units and common stock subject to vesting requirements 2,469   2,469      
Dividends declared (13)       (13)  
Net income 5,527       5,527  
Foreign currency translation (1,830)         (1,830)
Balance at Mar. 27, 2020 $ 140,799 $ 58 $ 304,214 $ (142,893) $ (8,200) $ (12,380)
Ending Balance, Shares at Mar. 27, 2020   57,472   (27,498)    
v3.20.1
Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Thousands
Mar. 27, 2020
Dec. 27, 2019
Statement Of Financial Position [Abstract]    
Accounts receivable and unbilled revenue, allowance $ 374 $ 743
Preferred stock, par value $ 0.001 $ 0.001
Preferred stock, shares authorized 1,250,000 1,250,000
Preferred stock, shares issued 0 0
Preferred stock, shares outstanding 0 0
Common stock, par value $ 0.001 $ 0.001
Common stock, shares authorized 125,000,000 125,000,000
Common stock, shares issued 57,472,441 57,180,616
Treasury stock, at cost, shares 27,498,432 27,425,476
v3.20.1
Transactions with Related Parties
3 Months Ended
Mar. 27, 2020
Related Party Transactions [Abstract]  
Transactions with Related Parties

10. Transactions with Related Parties

During the three months ended March 27, 2020, the Company bought back 37 thousand shares of its common stock from members of its Board of Directors for $0.7 million, or $17.43 per share.

v3.20.1
Restructuring Costs (Narrative) (Details) - USD ($)
$ in Thousands
12 Months Ended
Dec. 27, 2019
Mar. 27, 2020
Restructuring And Related Activities [Abstract]    
Restructuring Costs $ 3,300  
Remaining restructuring commitments $ 1,584 $ 526
v3.20.1
Net Income Per Common Share (Reconciliation of Basic and Diluted Weighted Average Shares) (Details) - shares
3 Months Ended
Mar. 27, 2020
Mar. 29, 2019
Earnings Per Share [Abstract]    
Basic weighted average common shares outstanding 29,889,142 29,682,888
Unvested restricted stock units and common stock subject to vesting requirements issued to employees and non-employees 97,577 239,047
Common stock issuable upon the exercise of stock options and SARs 2,277,288 2,372,515
Dilutive weighted average common shares outstanding 32,264,007 32,294,450
v3.20.1
Leases (Future Minimum Lease Payments Under Non-Cancellable Operating Leases) (Details)
$ in Thousands
Mar. 27, 2020
USD ($)
Leases [Abstract]  
2020 (excluding the three months ended March 27, 2020) $ 1,995
2021 2,539
2022 2,250
2023 1,292
2024 960
2025 and thereafter 1,207
Total lease payments 10,243
Less imputed interest (925)
Total $ 9,318
v3.20.1
Restructuring Costs
3 Months Ended
Mar. 27, 2020
Restructuring And Related Activities [Abstract]  
Restructuring Costs

5. Restructuring Costs 

During 2019, the Company recorded restructuring costs of $3.3 million, which was primarily related to the reduction of staff in Europe and Australia. As of March 27, 2020, the Company had $0.5 million of remaining commitments related to the restructuring charge.  

 

The following table sets forth the activity in the restructuring expense accruals (in thousands):

 

 

 

 

 

 

 

Exit, Closure and

 

 

 

 

 

 

Severance and Other

 

 

Consolidation

 

 

 

 

 

 

Employee Costs

 

 

of Facilities

 

Total

 

Accrual balance at December 27, 2019

$

 

1,247

 

$

 

337

 

 

1,584

 

Additions

 

 

 

 

 

 

 

 

Expenditures

 

 

(990

)

 

 

(68

)

 

(1,058

)

Accrual balance at March 27, 2020

$

 

257

 

$

 

269

 

 

526

 

 

v3.20.1
Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
3 Months Ended
Mar. 27, 2020
Mar. 29, 2019
Cash flows from operating activities:    
Net income $ 5,527 $ 7,094
Less gain (loss) from discontinued operations (8) 45
Net income from continuing operations 5,535 7,049
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation expense 800 606
Amortization expense 238 299
Amortization of debt issuance costs 23 23
Non-cash stock compensation expense 2,230 1,704
Provision for doubtful accounts 21 507
Gain on foreign currency translation (100) (64)
Release of valuation allowance 1,622 1,714
Changes in assets and liabilities:    
Increase in accounts receivable and unbilled revenue (3,357) (1,592)
(Increase) decrease in prepaid expenses and other assets (185) 301
Decrease in accounts payable (147) (1,054)
Decrease in accrued expenses and other liabilities (236) (2,176)
Increase (decrease) in income tax payable 85 (603)
Net cash provided by operating activities 6,521 6,759
Cash flows from investing activities:    
Purchases of property and equipment (533) (1,505)
Net cash used in investing activities (533) (1,505)
Cash flows from financing activities:    
Proceeds from borrowings   1,000
Dividends paid (5,790) (5,407)
Repurchase of common stock (2,969) (3,990)
Net cash used in financing activities (8,759) (8,397)
Effect of exchange rate on cash 97 (6)
Net decrease in cash and cash equivalents (2,674) (3,149)
Cash at beginning of period 25,954 13,808
Cash at end of period 23,280 10,659
Supplemental disclosure of cash flow information:    
Cash paid for income taxes 350 315
Cash paid for interest $ 14 $ 87
v3.20.1
Consolidated Balance Sheets - USD ($)
$ in Thousands
Mar. 27, 2020
Dec. 27, 2019
Current assets:    
Cash $ 23,280 $ 25,954
Accounts receivable and unbilled revenue, net of allowance of $374 and $743 at March 27, 2020 and December 27, 2019, respectively 53,397 49,778
Prepaid expenses and other current assets 3,316 2,895
Total current assets 79,993 78,627
Property and equipment, net 19,774 19,916
Other assets 2,238 2,652
Goodwill 83,786 84,578
Operating lease right-of-use assets 9,318 7,962
Total assets 195,109 193,735
Current liabilities:    
Accounts payable 8,347 8,494
Accrued expenses and other liabilities 27,848 32,482
Operating lease liabilities 2,686 2,707
Total current liabilities 38,881 43,683
Non-current deferred tax liability, net 8,797 7,183
Operating lease liabilities 6,632 5,255
Total liabilities 54,310 56,121
Commitments and contingencies
Shareholders’ equity:    
Preferred stock, $0.001 par value, 1,250,000 shares authorized; none issued and outstanding
Common stock, $0.001 par value, 125,000,000 shares authorized; 57,472,441 and 57,180,616 shares issued at March 27, 2020 and December 27, 2019, respectively 58 58
Additional paid-in capital 304,214 303,707
Treasury stock, at cost, 27,498,432 and 27,425,476 shares March 27, 2020 and December 27, 2019, respectively (142,893) (141,887)
Accumulated deficit (8,200) (13,714)
Accumulated other comprehensive loss (12,380) (10,550)
Total shareholders' equity 140,799 137,614
Total liabilities and shareholders' equity $ 195,109 $ 193,735
v3.20.1
Shareholders' Equity
3 Months Ended
Mar. 27, 2020
Stockholders Equity Note [Abstract]  
Shareholders' Equity

9. Shareholders’ Equity

Stock Appreciation Rights (“SARs”)

As of March 27, 2020, the Company had 2.9 million SARs outstanding with an exercise price of $4.00 per share and an expiration date of February 2022.           

Treasury Stock

Under the Company’s share repurchase plan, the Company may repurchase shares of its outstanding common stock either on the open market or through privately negotiated transactions subject to market conditions and trading restrictions. During the three months ended March 27, 2020, the Company repurchased 73 thousand shares of its common stock at an average price of $13.79 per share for a total cost of $1.0 million.  As of March 27, 2020 the Company had a total authorization remaining of $5.6 million under its repurchase plan with a  total authorization of $147.2 million.    

During the quarter ended March 29, 2019, the Company repurchased 101 thousand shares of its common stock at an average price of $15.99 per share for a total cost of $1.6 million.  

The shares repurchased under the share repurchase plan during the quarter ended March 27, 2020, do not include 125 thousand shares which the Company bought back to satisfy employee net vesting obligations for a cost of $2.0 million. During the quarter ended March 29, 2019, the Company bought back 123 thousand shares at a cost of $2.4 million to satisfy employee net vesting obligations.       

Dividend Program

In 2019, the Company increased the annual dividend from $0.34 per share to $0.36 per share to be paid on a semi-annual basis. During the first quarter of 2020, the Company paid its second semi-annual dividend payment to shareholders, which was declared in 2019 of $5.8 million.  In addition, during the quarter ended March 27, 2020, the Company increased its annual dividend to $0.38 per share to be paid on a semi-annual basis.  These dividends were paid from U.S. domestic sources and are accounted for as an increase to accumulated deficit. The Company’s Board of Directors has deferred the Company’s regular bi-annual dividend declaration decision until closer to the end of the second quarter.  The Board of Directors will consider all relevant information available to us at that time before making a decision.  At this time, the Company cannot predict whether or not it will declare the bi-annual dividend, reduce the dividend, defer the decision further or suspend the dividend program for the rest of the year or longer. 

v3.20.1
Geographic and Group Information (Long-Lived Assets Attributable To Geographic Area) (Details) - USD ($)
$ in Thousands
Mar. 27, 2020
Dec. 27, 2019
Revenues from External Customers and Long-Lived Assets [Line Items]    
Total long-lived assets $ 115,116 $ 115,108
North America [Member]    
Revenues from External Customers and Long-Lived Assets [Line Items]    
Total long-lived assets 93,048 91,309
International (Primarily European Countries) [Member]    
Revenues from External Customers and Long-Lived Assets [Line Items]    
Total long-lived assets $ 22,068 $ 23,799
v3.20.1
Stock Based Compensation (Narrative) (Details)
$ / shares in Units, $ in Millions
3 Months Ended
Mar. 27, 2020
USD ($)
$ / shares
shares
Restricted Stock Units (RSUs) [Member]  
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]  
Shares granted | shares 556,604
Weighted average grant-date fair value | $ / shares $ 15.77
Shares outstanding | shares 1,183,539
Nonvested weighted average grant-date fair value | $ / shares $ 16.75
Compensation expense | $ $ 17.0
Weighted average period 2 years 7 months 6 days
Common Stock Subject to Vesting Requirements [Member]  
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]  
Shares outstanding | shares 127,738
Nonvested weighted average grant-date fair value | $ / shares $ 18.65
Compensation expense | $ $ 1.3
Weighted average period 1 year 4 months 24 days
v3.20.1
Geographic and Group Information (Tables)
3 Months Ended
Mar. 27, 2020
Segment Reporting [Abstract]  
Geographic Revenue before Reimbursement

Revenue before reimbursements, which is primarily based on the country of the contracting entity, was attributed to the following geographical areas (in thousands):

 

 

 

Quarter Ended

 

 

 

March 27,

 

 

March 29,

 

 

 

2020

 

 

2019

 

Revenue before reimbursements:

 

 

 

 

 

 

 

 

North America

 

$

57,054

 

 

$

52,537

 

International (primarily European countries)

 

 

8,132

 

 

 

9,833

 

Revenue before reimbursements

 

$

65,186

 

 

$

62,370

 

Long-Lived Assets Attributable To Geographic Area

 

Long-lived assets are attributable to the following geographic areas (in thousands):

 

 

 

March 27,

 

 

December 27,

 

 

 

2020

 

 

2019

 

Long-lived assets:

 

 

 

 

 

 

 

 

North America

 

$

93,048

 

 

$

91,309

 

International (primarily European countries)

 

 

22,068

 

 

 

23,799

 

Total long-lived assets

 

$

115,116

 

 

$

115,108

 

v3.20.1
Acquisitions
3 Months Ended
Mar. 27, 2020
Business Combinations [Abstract]  
Acquisitions

13. Acquisitions

Jibe Consulting, Inc.

Effective May 1, 2017, the Company acquired certain assets and liabilities of Jibe Consulting, Inc. (“Jibe”), a U.S.-based Oracle E-Business Suite and Oracle Cloud Business Application implementation firm. The acquisition of Jibe enhances the Company’s Cloud Application capabilities and strongly complements its market leading EPM transformation and technology implementation group.

The sellers’ purchase consideration was $5.4 million in cash, not subject to vesting, and $3.6 million in shares of the Company’s common stock, subject to vesting. The initial cash consideration was funded from borrowings under the Revolver. The equity that was issued has a four-year vesting term and will be recorded as compensation expense over the respective vesting period. In addition, the sellers earned contingent consideration of $0.7 million of cash and $1.0 million of equity based on the achievement of performance targets over the 18 months following the closing.     

The cash related to the contingent consideration, which was paid to the sellers, is not subject to service vesting and has been accounted for as part of the purchase consideration. The cash related to the contingent consideration, which was to be paid to the key employees, is subject to service vesting and was accounted for as compensation expense. Due to the projected earnout results, during the first quarter of 2019, the acquisition-related purchase consideration and compensation expense allocated to both the selling shareholders and key employees resulted in a benefit of $1.2 million in earnings from operations on the consolidated statement of operations related to the contingent earnout liability for the Jibe acquisition. These contingent liabilities were recorded in the consolidated balance sheet as current accrued expenses and other liabilities. During the fourth quarter of 2019, the contingent liabilities were settled.

v3.20.1
Accounts Receivable and Unbilled Revenue, Net (Tables)
3 Months Ended
Mar. 27, 2020
Receivables Net Current [Abstract]  
Accounts Receivable and Unbilled Revenue, Net

Accounts receivable and unbilled revenue, net, consisted of the following (in thousands):

 

 

 

March 27,

 

 

December 27,

 

 

 

2020

 

 

2019

 

Accounts receivable

 

$

38,400

 

 

$

35,884

 

Unbilled revenue

 

 

15,371

 

 

 

14,637

 

Allowance for doubtful accounts

 

 

(374

)

 

 

(743

)

Accounts receivable and unbilled revenue, net

 

$

53,397

 

 

$

49,778

 

v3.20.1
Accounts Receivable and Unbilled Revenue, Net
3 Months Ended
Mar. 27, 2020
Receivables Net Current [Abstract]  
Accounts Receivable and Unbilled Revenue, Net

3. Accounts Receivable and Unbilled Revenue, Net

Accounts receivable and unbilled revenue, net, consisted of the following (in thousands):

 

 

 

March 27,

 

 

December 27,

 

 

 

2020

 

 

2019

 

Accounts receivable

 

$

38,400

 

 

$

35,884

 

Unbilled revenue

 

 

15,371

 

 

 

14,637

 

Allowance for doubtful accounts

 

 

(374

)

 

 

(743

)

Accounts receivable and unbilled revenue, net

 

$

53,397

 

 

$

49,778

 

 

Accounts receivable is net of uncollected advanced billings. Unbilled revenue represents revenue for services performed that have not been invoiced.

v3.20.1
Consolidated Statements of Operations - USD ($)
$ in Thousands
3 Months Ended
Mar. 27, 2020
Mar. 29, 2019
Revenue:    
Total revenue $ 69,533 $ 67,155
Cost of service:    
Total cost of service 47,054 44,589
Stock compensation expense 1,594 999
Selling, general and administrative costs 14,135 14,341
Stock compensation expense 636 705
Acquisition-related contingent consideration liability   (1,070)
Total costs and operating expenses 61,825 58,565
Income from operations 7,708 8,590
Other expense:    
Interest expense (37) (101)
Income from operations before income taxes 7,671 8,489
Income tax expense 2,136 1,440
Income from continuing operations 5,535 7,049
Gain (loss) from discontinued operations (8) 45
Net income $ 5,527 $ 7,094
Basic net income per common share:    
Income per common share from continuing operations $ 0.19 $ 0.24
Gain (loss) per common share from discontinued operations 0.00 0.00
Net income per common share 0.19 0.24
Diluted net income per common share:    
Income per common share from continuing operations 0.17 0.22
Gain (loss) per common share from discontinued operations 0.00 0.00
Net income per common share $ 0.17 $ 0.22
Weighted average common shares outstanding:    
Basic 29,889,142 29,682,888
Diluted 32,264,007 32,294,450
Revenue Before Reimbursements [Member]    
Revenue:    
Total revenue $ 65,186 $ 62,370
Reimbursements [Member]    
Revenue:    
Total revenue 4,347 4,785
Cost of service:    
Total cost of service 4,347 4,785
Cost Before Reimbursements [Member]    
Cost of service:    
Total cost of service $ 41,113 $ 38,805
v3.20.1
Credit Facility
3 Months Ended
Mar. 27, 2020
Debt Disclosure [Abstract]  
Credit Facility

 

7. Credit Facility

The Company has a credit agreement with Bank of America, N.A. (“Bank of America”), which provides for borrowing up to $45.0 million pursuant to a revolving line of credit (the “Revolver”) which had a maturity date of May 9, 2021 (the “Credit Agreement”).

 

The obligations of Hackett under the Revolver are guaranteed by active existing and future material U.S. subsidiaries of Hackett (the “U.S. Subsidiaries”), and are secured by substantially all of the existing and future property and assets of Hackett and the U.S. Subsidiaries, a 100% pledge of the capital stock of the U.S. Subsidiaries, and a 66% pledge of the capital stock of Hackett’s direct foreign subsidiaries (subject to certain exceptions).

As of March 27, 2020 and December 27, 2019, the Company did not have any outstanding balance .  The interest rates per annum applicable to borrowings under Revolver will be, at the Company’s option, equal to either a base rate or a LIBOR base rate, plus an applicable margin percentage. The applicable margin percentage is based on the consolidated leverage ratio, as defined in the Credit Agreement. As of March 27, 2020, the applicable margin percentage was 1.50% per annum based on the consolidated leverage ratio, in the case of LIBOR rate advances, and 0.75% per annum, in the case of base rate advances. The interest rate of the commitment fees as of March 27, 2020, was 0.125%.

The Company is subject to certain covenants, including total consolidated leverage, fixed cost coverage, adjusted fixed cost coverage and liquidity requirements, each as set forth in the Credit Agreement, subject to certain exceptions.  As of March 27, 2020, the Company was in compliance with all covenants.

Subsequent to March 27, 2020, the Company amended the Credit Agreement with Bank of America to extend the maturity date to November 30, 2022. The amendment also increased the interest payable on outstanding loans in respect of the Revolver by an additional per annum rate of 0.50% and provided for a LIBOR floor of 75 basis points. The borrowing capacity remains at $45.0 million.

v3.20.1
Basis of Presentation and General Information
3 Months Ended
Mar. 27, 2020
Organization Consolidation And Presentation Of Financial Statements [Abstract]  
Basis of Presentation and General Information

1. Basis of Presentation and General Information

Basis of Presentation

The accompanying consolidated financial statements of The Hackett Group, Inc. (“Hackett” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and include the Company’s accounts and those of its wholly-owned subsidiaries which the Company is required to consolidate. All intercompany transactions and balances have been eliminated in consolidation.

In the opinion of management, the accompanying consolidated financial statements reflect all normal and recurring adjustments which are necessary for a fair presentation of the Company’s financial position, results of operations, and cash flows as of the dates and for the periods presented. The consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, these statements do not include all the disclosures normally required by U.S. GAAP for annual financial statements and should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 27, 2019, included in the Annual Report on Form 10-K filed by the Company with the SEC on March 5, 2020. The consolidated results of operations for the quarter ended March 27, 2020, are not necessarily indicative of the results to be expected for any future period or for the full fiscal year.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Revenue Recognition

The Company’s revenue is substantially generated from providing professional services to its clients. The Company also generates revenue from software licenses, software support, maintenance and subscriptions to its executive and best practices advisory programs. A single contract could include one or multiple performance obligations. For those contracts that have multiple performance obligations, the Company allocates the total transaction price to each performance obligation based on its relative standalone selling price.  The Company determines the standalone selling price based on the respective selling price of the individual elements when they are sold separately.  

Revenue is recognized when control of the goods and services provided are transferred to the Company’s customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods and services using the following steps: 1) identify the contract, 2) identify the performance obligations, 3) determine the transaction price, 4) allocate the transaction price to the performance obligations in the contract, and 5) recognize revenue as or when we satisfy the performance obligations.  

The Company typically satisfies its performance obligations for professional services over time as the related services are provided. The performance obligations related to software support, maintenance and subscriptions to our executive and best practice advisory programs are typically satisfied evenly over the course of the service period. Other performance obligations, such as software licenses, are satisfied at a point in time.

The Company generates its revenue under four types of billing arrangements: fixed-fee (including software license revenue); time-and-materials; executive and best practice advisory services; and software sales, maintenance and support.

In fixed-fee billing arrangements, which would also include contracts with capped fees, the Company agrees to a pre-established fee or fee cap in exchange for a predetermined set of professional services. The Company sets the fees based on its estimates of the costs and timing for completing the engagements. The Company generally recognizes revenue under fixed-fee or capped fee arrangements using a proportionate performance approach, which is based on work completed to-date as compared to estimates of the total services to be provided under the engagement. Estimates of total engagement revenue and cost of services are monitored regularly during the term of the engagement. If the Company’s estimates indicate a potential loss, such loss is recognized in the period in which the loss first becomes probable and reasonably estimable. The customer is invoiced based on the contractual agreement between the parties, typically bi-weekly, monthly or milestone driven, with net thirty-day terms.

Time-and-material billing arrangements require the client to pay based on the number of hours worked by the Company’s consultants at agreed upon hourly rates. The Company recognizes revenue under time-and-material arrangements as the related services or goods are provided, using the right to invoice practical expedient which allows us to recognize revenue in the amount based on the number of hours worked and the agreed upon hourly rates.  The customer is invoiced based on the contractual agreement between the parties, typically bi-weekly, monthly or milestone driven, with net thirty-day terms.

1. Basis of Presentation and General Information (continued)

 

Advisory services contracts are typically in the form of a subscription agreement which allows the customer access to the Company’s executive and best practice advisory programs.  There is typically a single performance obligation and the transaction price is the contractual amount of the subscription agreement.  Revenue from advisory service contracts is recognized ratably over the life of the agreements.  Customers are typically invoiced at the inception of the contract, with net thirty-day terms.

The resale of software and maintenance contracts are in the form of SAP America software license or maintenance agreements provided by SAP America.  SAP is the principal and the Company is the agent in these transactions as the Company does not obtain title to the software and the maintenance is sold simultaneously.  The transaction price is the Company’s agreed-upon percentage of the software license or maintenance amount in the contract with the vendor.  Revenue for the resale of software licenses is recognized upon contract execution and customer’s receipt of the software. Revenue from maintenance contracts is recognized ratably over the life of the agreements.  The customer is typically invoiced at contract inception, with net thirty-day terms.

Expense reimbursements that are billable to clients are included in total revenue and are substantially all billed as time-and-material billing arrangements.  Therefore, the Company recognizes all reimbursable expenses as revenue as the related services are provided, using the right to invoice practical expedient. Reimbursable expenses are recognized as expenses in the period in which the expense is incurred.  Any expense reimbursements that are billable to clients under fixed-fee billing arrangements are recognized in line with the proportionate performance approach.  

The payment terms and conditions in our customer contracts vary. The agreements entered into in connection with a project, whether time-and-materials, fixed-fee or capped-fee based, typically allow clients to terminate early due to breach or for convenience with a 30 days’ notice. In the event of termination, the client is contractually required to pay for all time, materials and expenses incurred by the Company through the effective date of the termination. In addition, from time to time the Company enters into agreements with its clients that limit its right to enter into business relationships with specific competitors of that client for a specific time period. These provisions typically prohibit the Company from performing a defined range of services which it might otherwise be willing to perform for potential clients. These provisions are generally limited to six to twelve months and usually apply only to specific employees or the specific project team.

Sales tax collected from customers and remitted to the applicable taxing authorities is accounted for on a net basis, with no impact to revenue.

Differences between the timing of billings and the recognition of revenue are recognized as either unbilled services or deferred revenue in the accompanying consolidated balance sheets. Revenue recognized for services performed but not yet billed to clients are recorded as unbilled services. Revenue recognized, but for which are not yet entitled to bill because certain events, such as the completion of the measurement period, are recorded as contract assets and included within unbilled services. Client prepayments are classified as deferred revenue and recognized over future periods as earned in accordance with the applicable engagement agreement. See Note 3 for the accounts receivable and unbilled revenue balances and see Note 4 for the deferred revenue balances. During the quarter ended March 27, 2020, the Company recognized $4.4 million of revenue as a result of changes in deferred revenue liability balance, as compared to $4.0 million for the quarter ended March 29, 2019. 

The following table reflects the Company’s disaggregation of total revenue including reimbursable expenses for the quarters ended March 27, 2020 and March 29, 2019:

 

 

 

Quarter Ended

 

 

 

March 27,

 

 

March 29,

 

 

 

2020

 

 

2019

 

Consulting

 

$

63,311

 

 

$

61,831

 

Software License Sales

 

 

1,875

 

 

 

539

 

Revenue before reimbursements from continuing operations

 

$

65,186

 

 

$

62,370

 

 

Capitalized Sales Commissions

Sales commissions earned by the Company’s sales force are considered incremental and recoverable costs of obtaining a contract with a customer. These costs are deferred and then amortized as project revenue is recognized.  We determined the period of amortization by taking into consideration the customer contract period, which are generally less than 12 months. Commission expense is included in Selling, General and Administrative Costs in the accompanying consolidated statements of operations. As of December 27, 2019, and December 28, 2018, the Company had $1.6 million and $1.2 million, respectively, of deferred commissions, of which $0.4 million and $0.2 million was amortized during the first three months of the year 2020 and 2019, respectively.  No impairment loss was recognized relating to the capitalization of deferred commission.

 

1. Basis of Presentation and General Information (continued)

Practical Expedients

The Company does not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less.  The Company does not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between payment by the customer and the transfer of the promised goods or services to the customer will be less than one year.

Fair Value

The Company’s financial instruments consist of cash and cash equivalents, accounts receivable and unbilled revenue, accounts payable, accrued expenses and other liabilities and debt. As of March 27, 2020 and December 27, 2019, the carrying amount of each financial instrument approximated the instrument’s respective fair value due to the short-term nature and maturity of these instruments.

The Company uses significant other observable market data or assumptions (Level 2 inputs as defined in accounting guidance) that it believes market participants would use in pricing debt. The fair value of the debt approximated the carrying amount, using Level 2 inputs, due to the short-term variable interest rates based on market rates.

Business Combinations

The Company applies the provisions of ASC 805, Business Combinations, in the accounting for its acquisitions, which requires recognition of the assets acquired and the liabilities assumed at their acquisition date fair values, separately from goodwill. Goodwill as of the acquisition date is measured as the excess of consideration transferred and the net of the acquisition date fair values of the tangible and identifiable intangible assets acquired and liabilities assumed. While the Company uses its best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date as well as contingent consideration, where applicable, its estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, that may be up to 12 months from the acquisition date, the Company records adjustments to the assets acquired and liabilities assumed with a corresponding adjustment to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, the impact of any subsequent adjustments is included in the consolidated statements of operations.

 

COVID-19 Pandemic Impact on Our Business

 

The level of revenue the Company can achieve is based on the Company’s ability to deliver market leading services and solutions and to deploy skilled teams of professionals quickly. The Company’s results of operations are affected by economic conditions, including macroeconomic conditions and levels of business confidence. In spite of some disruption in March 2020, the COVID-19 pandemic did not have a significant impact on the Company’s consolidated results of operations during the first quarter of 2020, however, it expects net revenue and dilutive earnings per share to be negatively impacted in the second quarter of 2020, and for negative impacts to continue until economic conditions improve. A substantial or prolonged economic downturn as a result of the COVID-19 pandemic or otherwise, weak or uncertain economic conditions or similar factors could adversely affect our clients’ financial condition which may further reduce the Company’s clients’ demand for our services.  

 

The Company is actively managing its business to respond to the impact of the COVID-19. The Company has reduced employee travel to only essential business needs and the employees have been working from home. The Company is generally following the requirements and protocols published by the U.S. Centers for Disease Control and the World Health Organization, and state and local governments. The Company cannot predict when or how it will begin to lift the actions put in place.

 

As a response to the ongoing COVID-19 pandemic, the Company has implemented plans to manage its costs and preserve cash. The Company has significantly limited the addition of new employees and third party contracted services, eliminated all travel except where necessary to meet customer needs, and acted to limit discretionary spending. To the extent the business disruption continues for an extended period, additional cost management actions will be considered.  Any future asset impairment charges, increases in allowance for doubtful accounts, or restructuring charges could be more likely and will be dependent on the severity and duration of the pandemic.

 

In light of the evolving health, social, economic and business environment, governmental regulations or mandates, and business disruptions that could occur, the potential impact that COVID-19 could have on the Company’s financial condition and operating results remains highly uncertain.

 

1. Basis of Presentation and General Information (continued)

Recently Issued Accounting Standards

In January 2017, the FASB issued ASU 2017-04, which eliminates Step 2 from the goodwill impairment test. For public companies, this update was effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted for interim and annual goodwill impairment test with a measurement date after January 1, 2017. The adoption did not have a material impact on the Company’s consolidated financial statements.

In January 2020, the Company adopted ASU 2016-13 which changes how entities measure credit losses for most financial assets, including trade accounts receivable. The adoption did not have a material impact on the financial statements.

 

Reclassifications

Certain prior period amounts in the consolidated financial statements, and notes thereto, have been reclassified to conform to current period presentation.

v3.20.1
Litigation
3 Months Ended
Mar. 27, 2020
Commitments And Contingencies Disclosure [Abstract]  
Litigation

11. Litigation

The Company is involved in legal proceedings, claims, and litigation arising in the ordinary course of business not specifically discussed herein. In the opinion of management, the final disposition of such matters will not have a material adverse effect on the Company’s financial position, cash flows or results of operations.

v3.20.1
Leases (Narrative) (Details)
$ in Millions
3 Months Ended
Mar. 27, 2020
USD ($)
Lessee Lease Description [Line Items]  
Weighted average remaining lease term 4 years 8 months 12 days
Weighted average discount rate 4.00%
Operating lease payments $ 0.6
Lessee, operating lease not yet commenced description As of March 27, 2020, the Company does not have any additional operating leases that have not yet commenced
Five Year Opt-Out Option for London Office Lease [Member]  
Lessee Lease Description [Line Items]  
Weighted average remaining lease term 3 years 3 months 18 days
London Office Lease [Member]  
Lessee Lease Description [Line Items]  
Operating lease opt-out option 5 years
Miami Office Lease [Member]  
Lessee Lease Description [Line Items]  
Operating lease opt-out option 4 years
Lessee, operating lease, option to extend the Company did extend its Miami office lease effective July 1, 2020, for an additional four years.
Minimum [Member]  
Lessee Lease Description [Line Items]  
Operating leases terms 1 year
Maximum [Member]  
Lessee Lease Description [Line Items]  
Operating leases terms 10 years
v3.20.1
Accounts Receivable and Unbilled Revenue, Net (Details) - USD ($)
$ in Thousands
Mar. 27, 2020
Dec. 27, 2019
Receivables Net Current [Abstract]    
Accounts receivable $ 38,400 $ 35,884
Unbilled revenue 15,371 14,637
Allowance for doubtful accounts (374) (743)
Accounts receivable and unbilled revenue, net $ 53,397 $ 49,778
v3.20.1
Acquisitions (Narrative) (Details) - Jibe Consulting, Inc [Member] - USD ($)
$ in Millions
3 Months Ended
May 01, 2017
Mar. 29, 2019
Business Acquisition [Line Items]    
Effective date of acquisition May 01, 2017  
Purchase consideration $ 5.4  
Purchase consideration, common stock $ 3.6  
Common stock vesting period 4 years  
Contingent consideration performance period 18 months  
Selling Shareholder's [Member]    
Business Acquisition [Line Items]    
Cash compensation benefit   $ 1.2
Cash Contingent Consideration [Member]    
Business Acquisition [Line Items]    
Contingent consideration $ 0.7  
Stock Based Contingent Consideration [Member]    
Business Acquisition [Line Items]    
Contingent consideration $ 1.0  
v3.20.1
Transactions with Related Parties (Narrative) (Details) - USD ($)
$ / shares in Units, shares in Thousands, $ in Thousands
3 Months Ended
Mar. 27, 2020
Mar. 29, 2019
Related Party Transaction [Line Items]    
Total cost $ 1,006 $ 1,616
Director [Member]    
Related Party Transaction [Line Items]    
Repurchase of common stock 37  
Total cost $ 700  
Purchase price per share $ 17.43  
v3.20.1
Basis of Presentation and General Information (Tables)
3 Months Ended
Mar. 27, 2020
Organization Consolidation And Presentation Of Financial Statements [Abstract]  
Summary of Disaggregation of Total Revenue Including Reimbursable Expenses

The following table reflects the Company’s disaggregation of total revenue including reimbursable expenses for the quarters ended March 27, 2020 and March 29, 2019:

 

 

 

Quarter Ended

 

 

 

March 27,

 

 

March 29,

 

 

 

2020

 

 

2019

 

Consulting

 

$

63,311

 

 

$

61,831

 

Software License Sales

 

 

1,875

 

 

 

539

 

Revenue before reimbursements from continuing operations

 

$

65,186

 

 

$

62,370

 

v3.20.1
Restructuring Costs (Tables)
3 Months Ended
Mar. 27, 2020
Restructuring And Related Activities [Abstract]  
Schedule of Activity in Restructuring Expense Accruals

The following table sets forth the activity in the restructuring expense accruals (in thousands):

 

 

 

 

 

 

 

Exit, Closure and

 

 

 

 

 

 

Severance and Other

 

 

Consolidation

 

 

 

 

 

 

Employee Costs

 

 

of Facilities

 

Total

 

Accrual balance at December 27, 2019

$

 

1,247

 

$

 

337

 

 

1,584

 

Additions

 

 

 

 

 

 

 

 

Expenditures

 

 

(990

)

 

 

(68

)

 

(1,058

)

Accrual balance at March 27, 2020

$

 

257

 

$

 

269

 

 

526

 

v3.20.1
Geographic and Group Information (Narrative) (Details) - USD ($)
$ in Millions
Mar. 27, 2020
Dec. 27, 2019
Segment Reporting [Abstract]    
Goodwill included in foreign assets $ 13.8 $ 14.6
v3.20.1
Shareholders' Equity (Narrative) (Details) - USD ($)
$ / shares in Units, shares in Thousands
3 Months Ended 12 Months Ended
Jul. 10, 2019
Mar. 27, 2020
Mar. 29, 2019
Dec. 27, 2019
Equity, Class of Treasury Stock [Line Items]        
Total cost   $ 1,006,000 $ 1,616,000  
Amount available under repurchase plan   5,600,000    
Stock repurchase authorized   $ 147,200,000    
Shares repurchased for employee net vesting obligations, shares   125 123  
Shares repurchased for employee net vesting obligations, value   $ 2,000,000 $ 2,400,000  
Dividend declared   $ 0.38    
Dividend payment $ 5,800,000 $ 13,000    
Minimum [Member]        
Equity, Class of Treasury Stock [Line Items]        
Dividend declared       $ 0.34
Maximum [Member]        
Equity, Class of Treasury Stock [Line Items]        
Dividend declared       $ 0.36
Share Repurchase Plan [Member]        
Equity, Class of Treasury Stock [Line Items]        
Repurchase of common stock   73 101  
Purchase price per share   $ 13.79 $ 15.99  
Total cost   $ 1,000,000 $ 1,600,000  
Stock Appreciation Rights (“SARs”) [Member]        
Equity, Class of Treasury Stock [Line Items]        
SARs outstanding   2,900    
Exercise price   $ 4.00    
Expiration date   Feb. 28, 2022    
v3.20.1
Net Income Per Common Share (Tables)
3 Months Ended
Mar. 27, 2020
Earnings Per Share [Abstract]  
Reconciliation of Basic and Diluted Weighted Average Shares

The following table reconciles basic and dilutive weighted average common shares:

 

 

 

Quarter Ended

 

 

 

March 27,

 

 

March 29,

 

 

 

2020

 

 

2019

 

Basic weighted average common shares outstanding

 

 

29,889,142

 

 

 

29,682,888

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

Unvested restricted stock units and common stock subject

   to vesting requirements issued to employees and

   non-employees

 

 

97,577

 

 

 

239,047

 

Common stock issuable upon the exercise of stock options

   and SARs

 

 

2,277,288

 

 

 

2,372,515

 

Dilutive weighted average common shares outstanding

 

 

32,264,007

 

 

 

32,294,450

 

v3.20.1
Leases (Tables)
3 Months Ended
Mar. 27, 2020
Leases [Abstract]  
Components of Lease Expense

The components of lease expense were as follows for the three months ended March 27, 2020 (in thousands):

 

Operating lease cost

 

$

562

 

 

 

 

 

 

Total net lease costs

 

$

562

 

Future Minimum Lease Payments Under Non-Cancellable Operating Leases

6. Leases (continued)

Future minimum lease payments under non-cancellable operating leases as of March 27, 2020, were as follows (in thousands):

 

2020 (excluding the three months ended March 27, 2020)

 

$

1,995

 

2021

 

 

2,539

 

2022

 

 

2,250

 

2023

 

 

1,292

 

2024

 

 

960

 

2025 and thereafter

 

 

1,207

 

Total lease payments

 

 

10,243

 

Less imputed interest

 

 

(925

)

Total

 

$

9,318

 

v3.20.1
Net Income Per Common Share
3 Months Ended
Mar. 27, 2020
Earnings Per Share [Abstract]  
Net Income Per Common Share

2. Net Income per Common Share

Basic net income per common share is computed by dividing net income by the weighted average number of common shares outstanding during the period. With regard to common stock subject to vesting requirements and restricted stock units issued to the Company’s employees and non-employee members of its Board of Directors, the calculation includes only the vested portion of such stock and units.

Diluted net income per common share is computed by dividing net income by the weighted average number of common shares outstanding, increased by the assumed conversion of other potentially dilutive securities during the period.

The following table reconciles basic and dilutive weighted average common shares:

 

 

 

Quarter Ended

 

 

 

March 27,

 

 

March 29,

 

 

 

2020

 

 

2019

 

Basic weighted average common shares outstanding

 

 

29,889,142

 

 

 

29,682,888

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

Unvested restricted stock units and common stock subject

   to vesting requirements issued to employees and

   non-employees

 

 

97,577

 

 

 

239,047

 

Common stock issuable upon the exercise of stock options

   and SARs

 

 

2,277,288

 

 

 

2,372,515

 

Dilutive weighted average common shares outstanding

 

 

32,264,007

 

 

 

32,294,450

 

 

Approximately 9 thousand shares and 4 thousand shares of common stock equivalents were excluded from the computations of diluted net income per common share for the quarters ended March 27, 2020 and March 29, 2019, respectively, as inclusion would have had an anti-dilutive effect on diluted net income per common share.   

v3.20.1
Geographic and Group Information
3 Months Ended
Mar. 27, 2020
Segment Reporting [Abstract]  
Geographic and Group Information

12. Geographic and Group Information

Revenue before reimbursements, which is primarily based on the country of the contracting entity, was attributed to the following geographical areas (in thousands):

 

 

 

Quarter Ended

 

 

 

March 27,

 

 

March 29,

 

 

 

2020

 

 

2019

 

Revenue before reimbursements:

 

 

 

 

 

 

 

 

North America

 

$

57,054

 

 

$

52,537

 

International (primarily European countries)

 

 

8,132

 

 

 

9,833

 

Revenue before reimbursements

 

$

65,186

 

 

$

62,370

 

 

Long-lived assets are attributable to the following geographic areas (in thousands):

 

 

 

March 27,

 

 

December 27,

 

 

 

2020

 

 

2019

 

Long-lived assets:

 

 

 

 

 

 

 

 

North America

 

$

93,048

 

 

$

91,309

 

International (primarily European countries)

 

 

22,068

 

 

 

23,799

 

Total long-lived assets

 

$

115,116

 

 

$

115,108

 

 

As of March 27, 2020 and December 27, 2019, foreign assets included $13.8 million and $14.6 million, respectively, of goodwill related to acquisitions.

v3.20.1
Accrued Expenses and Other Liabilities
3 Months Ended
Mar. 27, 2020
Accrued Liabilities And Other Liabilities Current [Abstract]  
Accrued Liabilities and Other Liabilities

4. Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities consisted of the following (in thousands):

 

 

 

March 27,

 

 

December 27,

 

 

 

2020

 

 

2019

 

Accrued compensation and benefits

 

$

7,209

 

 

$

3,987

 

Accrued bonuses

 

 

1,068

 

 

 

3,932

 

Accrued dividend payable

 

 

 

 

 

5,791

 

Restructuring liability

 

 

526

 

 

 

1,584

 

Deferred revenue

 

 

11,922

 

 

 

9,583

 

Accrued sales, use, franchise and VAT tax

 

 

2,083

 

 

 

2,460

 

Non-cash stock compensation accrual

 

 

100

 

 

 

339

 

Income tax payable

 

 

2,705

 

 

 

2,611

 

Other accrued expenses

 

 

2,235

 

 

 

2,195

 

Total accrued expenses and other liabilities

 

$

27,848

 

 

$

32,482

 

 

v3.20.1
Consolidated Statements of Comprehensive Income - USD ($)
$ in Thousands
3 Months Ended
Mar. 27, 2020
Mar. 29, 2019
Statement Of Income And Comprehensive Income [Abstract]    
Net income $ 5,527 $ 7,094
Foreign currency translation adjustment (1,830) 657
Total comprehensive income $ 3,697 $ 7,751
v3.20.1
Document and Entity Information - shares
3 Months Ended
Mar. 27, 2020
May 01, 2020
Cover [Abstract]    
Trading Symbol HCKT  
Entity Registrant Name HACKETT GROUP, INC.  
Entity Central Index Key 0001057379  
Document Type 10-Q  
Document Period End Date Mar. 27, 2020  
Amendment Flag false  
Document Fiscal Year Focus 2020  
Document Fiscal Period Focus Q1  
Current Fiscal Year End Date --01-01  
Entity Filer Category Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Common Stock, Shares Outstanding   29,976,154
Title of 12(b) Security Common Stock, par value $.001 per share  
Security Exchange Name NASDAQ  
Entity Shell Company false  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity File Number 333-48123  
Entity Tax Identification Number 65-0750100  
Entity Address, Address Line One 1001 Brickell Bay Drive  
Entity Address, Address Line Two Suite 3000  
Entity Address, City or Town Miami  
Entity Address, State or Province FL  
Entity Address, Postal Zip Code 33131  
City Area Code 305  
Local Phone Number 375-8005  
Entity Incorporation, State or Country Code FL  
Document Quarterly Report true  
Document Transition Report false  
v3.20.1
Stock Based Compensation
3 Months Ended
Mar. 27, 2020
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]  
Stock Based Compensation

8. Stock Based Compensation

During the three months ended March 27, 2020, the Company issued 556,604 restricted stock units at a weighted average grant-date fair value of $15.77 per share. As of March 27, 2020, the Company had 1,183,539 restricted stock units outstanding at a weighted average grant-date fair value of $16.75 per share. As of March 27, 2020, $17.0 million of total restricted stock unit compensation expense related to unvested awards had not been recognized and is expected to be recognized over a weighted average period of approximately 2.6 years.

As of March 27, 2020, the Company had 127,738 shares of common stock subject to vesting requirements outstanding at a weighted average grant-date fair value of $18.65 per share. As of March 27, 2020, $1.3 million of compensation expense related to common stock subject to vesting requirements had not been recognized and is expected to be recognized over a weighted average period of approximately 1.4 years.

Forfeitures for all of the Company’s outstanding equity are recognized as incurred.

v3.20.1
Restructuring Costs (Schedule of Activity in Restructuring Expense Accruals) (Details) - USD ($)
$ in Thousands
3 Months Ended 12 Months Ended
Mar. 27, 2020
Dec. 27, 2019
Restructuring Cost And Reserve [Line Items]    
Accrual beginning balance $ 1,584  
Additions   $ 3,300
Expenditures (1,058)  
Accrual ending balance 526 1,584
Severance and Other Employee Costs [Member]    
Restructuring Cost And Reserve [Line Items]    
Accrual beginning balance 1,247  
Expenditures (990)  
Accrual ending balance 257 1,247
Exit Closure and Consolidation of Facilities [Member]    
Restructuring Cost And Reserve [Line Items]    
Accrual beginning balance 337  
Expenditures (68)  
Accrual ending balance $ 269 $ 337
v3.20.1
Net Income Per Common Share (Narrative) (Details) - shares
shares in Thousands
3 Months Ended
Mar. 27, 2020
Mar. 29, 2019
Earnings Per Share [Abstract]    
Antidilutive common share equivalents 9 4